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

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  • Honghai Yu
  • Libing Fang
  • Boyang Sun
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.

Suggested Citation

  • Honghai Yu & Libing Fang & Boyang Sun, 2018. "The role of global economic policy uncertainty in long-run volatilities and correlations of U.S. industry-level stock returns and crude oil," PLOS ONE, Public Library of Science, vol. 13(2), pages 1-17, February.
    • Handle: RePEc:plo:pone00:0192305
    DOI: 10.1371/journal.pone.0192305
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    2. Yuan, Di & Li, Sufang & Li, Rong & Zhang, Feipeng, 2022. "Economic policy uncertainty, oil and stock markets in BRIC: Evidence from quantiles analysis," Energy Economics, Elsevier, vol. 110(C).
    3. Ifedolapo Olabisi Olanipekun & Hasan Güngör & Godwin Olasehinde-Williams, 2019. "Unraveling the Causal Relationship Between Economic Policy Uncertainty and Exchange Market Pressure in BRIC Countries: Evidence From Bootstrap Panel Granger Causality," SAGE Open, , vol. 9(2), pages 21582440198, June.
    4. Wang, Xiong & Li, Jingyao & Ren, Xiaohang & Bu, Ruijun & Jawadi, Fredj, 2023. "Economic policy uncertainty and dynamic correlations in energy markets: Assessment and solutions," Energy Economics, Elsevier, vol. 117(C).
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    7. Mobeen Ur Rehman & Wafa Ghardallou & Nasir Ahmad & Xuan Vinh Vo & Sang Hoon Kang, 2024. "Does effect of risk and uncertainties on US sectoral returns differ across different investment horizons and market conditions," Risk Management, Palgrave Macmillan, vol. 26(1), pages 1-49, February.

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