Comparing U.S. and European Market Volatility Responses to Interest Rate Policy Announcements

Krieger, Kevin and Mauck, Nathan and Vasquez, Joseph (2014): Comparing U.S. and European Market Volatility Responses to Interest Rate Policy Announcements.

Abstract

We examine the response of U.S. (VIX) and German (VDAX) implied volatility indices to the announcement of interest rate policy decisions by the Federal Open Market Committee (FOMC) and the European Central Bank (ECB). We confirm prior findings that VIX declines on FOMC meetings days. We present new findings that indicate that VDAX declines on FOMC meeting days, but is not related to ECB meeting days. VIX is unrelated to ECB meeting days. Taken collectively, our results indicate a prominent position for the FOMC in determining uncertainty levels both domestically and abroad relative to no relation between uncertainty levels and the ECB. JEL

• Item Type: MPRA Paper
• Language: English
• Keywords: FOMC, ECB, VIX, VDAX, Monetary policy, Volatility spillover
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; F - International Economics > F3 - International Finance; F - International Economics > F6 - Economic Impacts of Globalization > F62 - Macroeconomic Impacts; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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