International stock volatility predictability: New evidence from uncertainties

This study explores the previous unexamined aspect of the comprehensive U.S. economic uncertainty in improving the accuracy of international equity markets volatility. Our empirical results reveal that the novel U.S. economic uncertainty index as a powerful new predictor of equity volatility in international markets from both in-sample and out-of-sample perspectives, especially for non-U.S. equity index formed by high market capitalization stocks. We show that the U.S. economic uncertainty index subsumes the information content of the stock market volatility, and it contains incremental information on future volatility after controlling for contemporaneous volatility. Furthermore, our empirical results suggest that the U.S. economic uncertainty can transmit to the international equity markets from credit spread channel. Our results are robust and provide new insights to investors and policy makers.