Monetary policy and speculative spillovers in financial markets

This paper examines the role of monetary policy (MP) as a driver of connectedness patterns in speculative activities in financial markets. Examining measures of speculation in four major markets including gold, equities, Treasury bonds and crude oil, we show that speculative activities can spill over across markets with the stock market generally serving as the main transmitter of speculative shocks. While unconventional MP is associated with greater connectedness of speculative activities in financial markets, we also find that unconventional (conventional) MP drives gold (financial assets) to serve as a net transmitter of speculative shocks to the other markets. The findings establish an important link between the monetary policy signals and trading behavior in financial markets with significant policy implications.

Automated summary

This paper examines the role of monetary policy in driving connectedness patterns in speculative activities in financial markets, finding that unconventional monetary policy increases the connectedness of speculative activities while the stock market generally serves as the main transmitter. Additionally, the study shows that monetary policy drives gold and financial assets to serve as net transmitters of speculative shocks to other markets.