Abstract
In this paper, we analyze the jump intensity in the Euro area, Japan, the UK and the US and measure their reactions to the US Federal Reserve meetings together with the country’s own monetary policy meetings. Evidence suggests that the jump intensity in all the markets is highly persistent. Further, the US monetary policy positively impacts the jump intensity in almost all the cases, including in the sub-sample periods found by the structural break test. Moreover, in assessing the joint effects on jump intensities, we find that the US policy dominates the monetary policy of the country itself.
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Notes
For more details about inference and modelling please refer to Chan and Maheu (2002).
For AR(2)-GARCH (1,1) model the log-likelihoods for FTSE100, Nikkei225, EuroStoxx50, and S&P500 are: −11,550.184, −13,483.983, −11,679.587, and − 25,610.653 respectively. For constant jump intensity model the log-likelihoods for FTSE100, Nikkei225, EuroStoxx50, and S&P500 are −11,391.962, −13,206.336, −11,403.618, and − 25,030.434 respectively. For time-varying jump intensity model (i.e. ARJI) the log-likelihoods for FTSE100, Nikkei225, EuroStoxx50, and S&P500 are −11,378.396, −13,206.336, −11,403.618, and − 24,967.038 respectively (reported in Table 1). Clearly, the time-varying jump intensity model better fits the data in terms of higher log-likelihoods, and hence, is the preferred model for jump intensity for these four stock markets. Detailed estimated results are not reported here for the model without jumps and the constant jump intensity model, but are available upon request from the authors.
We also estimated a model for the Euro Area, Japan, and UK, based on just their own respective monetary policy committee meeting dummies, i.e., without the FOMC dummy. However, results were quantitatively and qualitatively similar to those obtained under Eq.(7a) and Eq.(7b). Hence, these results have not been reported to save space, but are available upon request from the authors.
Results were, however, both qualitatively and quantitatively similar with the contemporaneous FOMC dummy for Japan. Complete details of these results are available upon request from the authors.
We also analysed the role of US jump intensity on the jump intensities of FTSE100, EuroStoxx50 and Nikkei225. Again for Japan, lagged US jump intensity was used. In all cases the effects were positive, with the coefficients being 0.1414 (FTSE100), 0.3296 (EuroStoxx50) and 0.1096 (Nikkei225), and statistically significant at the 1 % level of significance. Complete details of these results are available upon request from the authors.
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Acknowledgements
We would like to thank two anonymous referees for many helpful comments. However, any remaining errors are solely ours.
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Gupta, R., Lau, C.K.M., Liu, R. et al. Price jumps in developed stock markets: the role of monetary policy committee meetings. J Econ Finan 43, 298–312 (2019). https://doi.org/10.1007/s12197-018-9444-z
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DOI: https://doi.org/10.1007/s12197-018-9444-z