The role of global economic policy uncertainty in long-run volatilities and correlations of U.S. industry-level stock returns and crude oil

Honghai Yu, Libing Fang and Boyang Sun

PLOS ONE, 2018, vol. 13, issue 2, 1-17

Abstract: We investigate how Global Economic Policy Uncertainty (GEPU) drives the long-run components of volatilities and correlations in crude oil and U.S. industry-level stock markets. Using the modified generalized autoregressive conditional heteroskedasticity mixed data sampling (GARCH-MIDAS) and dynamic conditional correlation mixed data sampling (DCC-MIDAS) specifications, we find that GEPU is positively related to the long-run volatility of Financials and Consumer Discretionary industries; however, it is negatively related to Information Technology, Materials, Telecommunication Services and Energy. Unlike the mixed role of GEPU in the long-run volatilities, the long-run correlations are all positively related to GEPU across the industries. Additionally, the rankings of the correlations of Energy and Materials are time-invariant and classified as high, with the little exception of the latter. The Consumer Staples industry is time-invariant in the low-ranking group. Our results are helpful to policy makers and investors with long-term concerns.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0192305

DOI: 10.1371/journal.pone.0192305

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