Open AccessCausal coupling between European and UK markets triggered by announcements of monetary policy decisions
Author(s) -
Vittoria Volta,
Tomaso Aste
Publication year - 2022
Publication title -
royal society open science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.84
H-Index - 51
ISSN - 2054-5703
DOI - 10.1098/rsos.211342
Subject(s) - bivariate analysis , stock (firearms) , monetary policy , monetary economics , interest rate , volatility (finance) , economics , transfer entropy , financial economics , econometrics , principle of maximum entropy , statistics , mathematics , mechanical engineering , engineering
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.