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Causal coupling between European and UK markets triggered by announcements of monetary policy decisions

Citation

Aste, Tomaso (2021), Causal coupling between European and UK markets triggered by announcements of monetary policy decisions, Dryad, Dataset, https://doi.org/10.5061/dryad.g4f4qrfr2

Abstract

We investigate high-frequency reactions in the Eurozone stock market and the UK stock market during the time period surrounding the 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 non-linear transfer entropy combined with a Bivariate Empirical Mode Decomposition (BEMD) from a dataset of 1-minute 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.