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Global economic policy uncertainty and gold futures market volatility: Evidence from Markov regime‐switching GARCH‐MIDAS models

Global economic policy uncertainty and gold futures market volatility: Evidence from Markov... This paper explores the effects of global economic policy uncertainty (GEPU) on conditional volatility in the gold futures market using Markov regime‐switching GARCH‐MIDAS models. The in‐sample empirical results suggest that GEPU indeed contains predictive information for the gold futures market, and higher GEPU leads to higher volatility within the gold futures market. Moreover, the novel model, which adds Markov regime switching with time‐varying transition probabilities and the GEPU index, achieves relatively better performance than those of the other competing models from a statistical point of view. Furthermore, we discuss the asymmetric effects of different changes in GEPU on the gold futures market and the models' performances with different horizons, and we find that our new model has better predictive performance under negative changes in GEPU than under positive changes in GEPU. Further discussion also confirms that our previous findings are robust during two special cases, the global financial crisis and European debt crisis, during which the market suffered from fierce fluctuations and was fraught with considerable uncertainty. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Forecasting Wiley

Global economic policy uncertainty and gold futures market volatility: Evidence from Markov regime‐switching GARCH‐MIDAS models

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References (9)

Publisher
Wiley
Copyright
© 2021 John Wiley & Sons, Ltd.
ISSN
0277-6693
eISSN
1099-131X
DOI
10.1002/for.2753
Publisher site
See Article on Publisher Site

Abstract

This paper explores the effects of global economic policy uncertainty (GEPU) on conditional volatility in the gold futures market using Markov regime‐switching GARCH‐MIDAS models. The in‐sample empirical results suggest that GEPU indeed contains predictive information for the gold futures market, and higher GEPU leads to higher volatility within the gold futures market. Moreover, the novel model, which adds Markov regime switching with time‐varying transition probabilities and the GEPU index, achieves relatively better performance than those of the other competing models from a statistical point of view. Furthermore, we discuss the asymmetric effects of different changes in GEPU on the gold futures market and the models' performances with different horizons, and we find that our new model has better predictive performance under negative changes in GEPU than under positive changes in GEPU. Further discussion also confirms that our previous findings are robust during two special cases, the global financial crisis and European debt crisis, during which the market suffered from fierce fluctuations and was fraught with considerable uncertainty.

Journal

Journal of ForecastingWiley

Published: Sep 1, 2021

Keywords: ; ; ; ;

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