Date of Degree


Document Type


Degree Name





Tao Wang

Committee Members

Michael Grossman

Merih Uctum

Subject Categories



In this study, the effects of different macroeconomic news on stock markets and different stock market co-movements are investigated. Impacts of good and bad macroeconomic news announcement surprises on the mean and conditional volatility of U.S. daily equity and Treasury bond market returns during economic recessions and expansions are examined. By jointly modeling returns and volatilities using a generalized autoregressive conditional heteroskedasticity (GARCH) models, it is found that surprise in unemployment news has no impact on stock returns during business cycles. On the other hand, the results indicate a significantly positive relation between the short term (long term) bond prices and unemployment surprises during business cycles (expansions), indicating that U.S. government bonds is a complete hedge against unexpected unemployment. However, positive inflation surprises affect all considered market returns negatively during expansions. The price movements in stock markets can be explained by expected future interest rates when an inflation surprise is arrived. Hence, both news surprises have more impact on volatility during economic recessions than expansions. Another way to see the dynamics of stock markets is to search the effect of different country equity market effects on each other. The second essay investigates it by linear and nonlinear Granger causality tests for US, UK and Japan stock markets, implying an arbitrage opportunity between stock markets. The third study examines the dynamic relationship between the monthly inflation, inflation uncertainty and stock for G3 countries. Using a GARCH model to generate a measure of inflation uncertainty, the empirical evidence indicates that higher inflation rates lead to greater inflation uncertainty for all countries as predicted by Friedman (1997). However, in all countries, except Japan, inflation uncertainty does not significantly either rise or fall average inflation. In contrast to linear linkages, there is a strong bi-directional non-linear causal relationship between inflation and its uncertainty for all countries. The similar findings are found for the inflation uncertainty and stock returns. Inflation uncertainty does not linear Granger-cause stock returns, except Japan. However, there is a bi-directional nonlinear Granger causality for all countries.


Digital reproduction from the UMI microform.

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