Causal coupling between European and UK markets triggered by announcements of monetary policy decisions

Volta, Vittoria and Aste, Tomaso (2022) Causal coupling between European and UK markets triggered by announcements of monetary policy decisions. Royal Society Open Science, 9 (3). ISSN 2054-5703

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Abstract

We investigate high-frequency reactions in the Eurozone stock market and the UK stock market during the time period surrounding European Central Bank (ECB) and the Bank of England (BoE)’s interest rate decisions, assessing how these two markets react and co-move influencing each other. The effects are quantified by measuring linear and nonlinear transfer entropy combined with a bivariate empirical mode decomposition from a dataset of 1 min prices for the Euro Stoxx 50 and the FTSE 100 stock indices. We uncover that central banks’ interest rate decisions induce an upsurge in intraday volatility that is more pronounced on ECB announcement days and there is a significant information flow between the markets with prevalent direction going from the market where the announcement is made towards the other.

Item Type:	Article
Official URL:	https://royalsocietypublishing.org/journal/rsos
Additional Information:	© 2022 The Authors
Divisions:	Systemic Risk Centre
Subjects:	H Social Sciences > HG Finance
Date Deposited:	25 Apr 2022 16:06
Last Modified:	08 May 2024 20:55
URI:	http://eprints.lse.ac.uk/id/eprint/114947

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