درک نوسانات بازار سهام: نقش عدم اطمینان ایالات متحده چیست؟ Understanding stock market volatility: What is the role of U.S. uncertainty?

1. Introduction Global financial market integration has received extensive attention among academics and practitioners alike (Barberis, Shleifer, & Wurgler, 2005; Bekaert and Harvey, 1995; Carrieri, Errunza, & Hogan, 2007). One of the interesting questions in the field concerns financial market contagion, which is often defined as a higher correlation of market returns or volatility across markets (Forbes & Rigobon, 2002). There is a wide variety of empirical studies that investigate this topic. Hamao, Masulis, and Ng (1990) examine the interdependence of prices and volatility across the Tokyo, London, and New York stock markets and find a volatility spillover across these markets. Solnik, Bourcrelle, and Le Fur (1996), Longin and Solnik (2001) show that international equity market correlation is usually larger in periods of bad market conditions or high volatility. Bekaert and Harvey (2003) employ a two-factor model to investigate contagion among different regions. As the U.S. has the world’s largest equity market, many studies focus on the spillover from the U.S. stock market. Ashanapalli and Doukas (1993) indicate that the U.S. stock market has considerable impact on the French, German, and UK markets, showing the exact direction of the spillover. Rapach, Strauss, and Zhou (2013) find that lagged U.S. returns significantly predict market returns in non-U.S. industrialized countries. Boubaker, Jouini, and Lahiani (2016) investigate the market contagion from the U.S. on select developed and emerging market during the global financial crisis. This study highlights a new channel of financial market contagion and a new source of stock market volatility: uncertainty. As we know, uncertainty is now an important factor in financial asset pricing and, as such, it influences investors’ consumption and portfolio decisions, which can lead to changes in asset prices (Drechsler, 2013). King and Wadhwani (1990) indicate that contagion occurs when rational agents attempt to infer information from other markets. The literature describes the theory of market contagion. As the U.S. has the world’s largest equity market, initial tremors in the U.S. economy and financial markets are not confined to the U.S. alone, but spread to other countries, indicating that foreign agents definitely focus on the U.S. economy and financial market conditions. The recent financial crisis in 2008 has already revealed that US stock market crash can transmit to other countries with surprising speed, and eventually evolves into a global crisis. As a source of such important market information, any economic uncertainty in the U.S. is immediately detected by foreign investors and can lead to changes in asset prices and volatility, thereby making it a channel of market contagion. Hence, it is plausible that the uncertainty of US stock market should play a critical role in international equity markets. There are many measures of uncertainty, including economic policy uncertainty (EPU, Baker, Bloom, & Davis, 2016), financial and macro uncertainty (FU and MU, Jurado, Ludvigson, & Ng, 2015; Ludvigson, Ma, & Ng, 2018), the macroeconomic uncertainty index (MUI, Bali, Brown, & Caglayan, 2014; Asgharian, Christiansen, & Hou, 2015), news-based implied volatility (NVIX, Monela & Moreira, 2017), and global uncertainty (GU, Ozturk & Sheng, 2017). Moreover, a rich amount of empirical studies use these measures of uncertainty to examine the relationships between uncertainty and asset returns or volatility (e.g., Asgharian et al., 2015; Bams, Blanchard, Honarvar, & Lehnert, 2017; Bekiros, Gupta, & Kyer, 2016; Conrad and Loch, 2015; Su, Fang, & Yin, 2017; Yao and Sun, 2018). The empirical results of these studies are similar and straightforward and uncertainty is usually positively associated with asset volatility.