The role of global economic policy uncertainty in long-run volatilities and correlations of U.S. industry-level stock returns and crude oil

• Published in: PloS one Vol. 13; no. 2; p. e0192305
• Main Authors: Yu, Honghai, Fang, Libing, Sun, Boyang
• Format: Journal Article
• Language: English
• Published: United States Public Library of Science 08.02.2018; Public Library of Science (PLoS)
• Subjects: Analysis; Biology and Life Sciences; Commodity futures; Computer and Information Sciences; Economics; Engineering and Technology; Forecasts and trends; Industry; Internationality; Investments; Medicine and Health Sciences; Petroleum; Physical Sciences; Prices and rates; Rankings; Social Sciences; Stocks; Uncertainty; United States; China
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0192305

We investigate how Global Economic Policy Uncertainty (GEPU) drives the long-run components of volatilities and correlations in crude oil and U.S. industry-level stock markets. Using the modified generalized autoregressive conditional heteroskedasticity mixed data sampling (GARCH-MIDAS) and dynamic conditional correlation mixed data sampling (DCC-MIDAS) specifications, we find that GEPU is positively related to the long-run volatility of Financials and Consumer Discretionary industries; however, it is negatively related to Information Technology, Materials, Telecommunication Services and Energy. Unlike the mixed role of GEPU in the long-run volatilities, the long-run correlations are all positively related to GEPU across the industries. Additionally, the rankings of the correlations of Energy and Materials are time-invariant and classified as high, with the little exception of the latter. The Consumer Staples industry is time-invariant in the low-ranking group. Our results are helpful to policy makers and investors with long-term concerns.