ARE THE POLICY UNCERTAINTY AND CLI ‘EFFECTIVE’ INDICATORS OF VOLATILITY? GARCH-MIDAS ANALYSIS OF THE G7 STOCK MARKETS

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ERSİN Ö. Ö., Gül M., Aşik B.

Economic Computation and Economic Cybernetics Studies and Research, cilt.56, sa.1, ss.141-158, 2022 (SCI-Expanded) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 56 Sayı: 1
  • Basım Tarihi: 2022
  • Doi Numarası: 10.24818/18423264/56.1.22.09
  • Dergi Adı: Economic Computation and Economic Cybernetics Studies and Research
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, Business Source Elite, Business Source Premier, EconLit, INSPEC, zbMATH
  • Sayfa Sayıları: ss.141-158
  • Anahtar Kelimeler: Economic Policy Uncertainty, Composite Leading Indicators, GARCH, Mixed Data Sampling
  • İstanbul Ticaret Üniversitesi Adresli: Hayır

Özet

The paper aims at the investigation of two important economic indicators, the economic policy uncertainty (EPU) and composite leading indicator (CLI) of OECD for their leading potential in forecasting the stock market volatility in G7 stock markets. To overcome the frequency discrepancy, the mixed sampling strategy is conducted with GARCH-MIDAS modeling. By utilizing a total of 42 estimations, the study has several contributions: i. both EPU and CLI are major leading indicators, ii. the model specification, rolling window, and fixed, matters, no a priori decision should be made by the researchers, iii. the positive (negative) influence of increases in EPU (CLI) cannot be rejected and should be kept in policy decisions. Lastly, comparative analysis revealed that CLI is a more efficient indicator however is closely followed by another efficient indicator, the EPU, for G7 stock markets’ volatility.