This paper studies the bivariate HEAVY system of daily and intra-daily volatility equations and its macro-augmented asymmetric power extension. We focus on economic drivers that exacerbate stock market volatility and can be proved to be major threats for …nancial stability. Our study proves the in ‡ammatory e¤ects of UK Policy Uncertainty alongside global credit and commodity factors that spread across European …nancial markets. This UK-led spillover phenomenon should be considered by world market participants and recognized, monitored and mitigated by policymakers amid the Brexit fears and the associated highly probable harm for Europe. Other …ndings are as follows.First, once we allow for power transformations, asymmetries, and macro-e¤ ects in the benchmark speci…cation, it is found that both powered conditional variances are signi…cantly a¤ected by the powers of squared negative returns and realized measure, further improving the HEAVY framework's forecasting accuracy. Second, the structural breaks applied to the bivariate system capture the time-varying behavior of the parameters, in particular during the global …nancial crisis of 2007/08. Third, higher UK uncertainty levels increase the leverage and global macro-e¤ects from credit and commodity markets on all European stock markets'realized volatilities.
This study examines the impact of investors’ buy and sell trades on Korean stock market volatility across two crisis events, the Asian crisis of 1997 and the 2008 global financial crash. We investigate the trading behaviour of domestic vs. foreign and institutional vs. individual investors. Our results suggest that the buy and sell trades have an asymmetric effect on volatility that depends on the type of investor trading and on the phase of the business cycle. Buy orders appear to be more informative than sell orders since they mostly lower volatility in the pre‐crisis periods, while sell and post‐crisis buy trades affect volatility positively regardless of who trades (institutional or individual investors) and on what information (member, non‐member). Most importantly, decomposing total buy and sell trades into trader‐type categories reveals that some institutional investors are more informed traders that stabilize the market compared to individuals that always increase volatility. Foreign investors reduce volatility with their purchases and total trading activity in the whole Asian crisis sample, but only in the pre‐crisis period before the recent global financial turmoil.
This paper studies the US and global economic fundamentals that exacerbate emerging stock markets volatility and can be considered as systemic risk factors increasing financial stability vulnerabilities. We apply the bivariate HEAVY system of daily and intra-daily volatility equations enriched with powers, leverage, and macro-effects that improve its forecasting accuracy significantly. Our macro-augmented asymmetric power HEAVY model estimates the inflammatory effect of US uncertainty and infectious disease news impact on equities alongside global credit and commodity factors on emerging stock index realized volatility. Our study further demonstrates the power of the economic uncertainty channel, showing that higher US policy uncertainty levels increase the leverage effects and the impact from the common macro-financial proxies on emerging markets’ financial volatility. Lastly, we provide evidence on the crucial role of both financial and health crisis events (the 2008 global financial turmoil and the recent Covid-19 pandemic) in raising markets’ turbulence and amplifying the volatility macro-drivers impact, as well.
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