Article ID Journal Published Year Pages File Type
5069323 Finance Research Letters 2017 8 Pages PDF
Abstract

Highlight•Multi-scale interaction between economic policy uncertainty (EPU) and financial stress (FS) is investigated.•Correlation is significant and fluctuates drastically in short-term fluctuation with unidirectional spillover effect from FS to EPU.•Bidirectional spillover effects exists between FS to EPU in the medium pattern with periodic correlation of two-regime characteristic.

Quantifying the dynamic interaction between economic policy uncertainty and financial stress is in its infancy. To identify the inherent relationship between them, this paper proposes a multi-scale correlation framework. Empirical results show that interaction occurs significantly and distinctly on different scales. Correlation is significant and fluctuates drastically in short-term fluctuation with unidirectional spillover effect from financial stress to economic policy uncertainty. Bidirectional spillover effects exist in the medium pattern with periodic correlation of two-regime characteristic. It helps for decision making to establish a proper timing reference to design a more reasonable arbitrage portfolio and improve risk-hedging strategies.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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