Investigating the Relationship Between Central Bank Transparency and Stock Market Volatility in a Nonparametric Framework
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Investigating the Relationship Between Central Bank Transparency and Stock Market Volatility in a Nonparametric Framework
Papadamou, Stephanos | Sidiropoulos, Moïse | Tzeremes, Nickolaos
Credit and Capital Markets – Kredit und Kapital, Vol. 50 (2017), Iss. 1 : pp. 63–83
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Ass. Prof. Dr. Stephanos Papadamou, University of Thessaly, Department of Economics, Korai 43, 38333 Volos, Greece
Prof. Dr. Moise Sidiropoulos, Beta University of Strasbourg, France/Aristotle University, Department of Economics, Thessaloniki, Greece
Ass. Prof. Dr. Nickolaos Tzeremes, University of Thessaly, Department of Economics, Korai 43, 38333 Volos, Greece
Abstract
This study investigates whether any non-linear relationship exists between central bank transparency and stock market variability in a non-parametric framework for a large number of countries. Our findings imply that a high level of transparency can significantly reduce historical as well as conditional stock market volatility in a non-linear manner. The negative effect of transparency on stock volatility is clearer when we move from low levels towards higher levels of transparency; this effect diminishes as long as we move to higher levels of transparency. This analysis implies that monetary authorities can contribute to equity market stability by adopting more transparent monetary policies in the early stages.