Date of Award


Degree Name

Doctor of Philosophy



First Advisor

Matthew Higgins, Ph.D.

Second Advisor

Debasri Mukherjee, Ph.D.

Third Advisor

Kevin Lee, Ph.D.


Heteroskedastic innovation, illiquidity connectedness, monetary policy, oil shocks, risk aversion, uncertainty


This study presents three essays on financial economics. In the first essay, we examine how monetary policy shocks affect risk aversion and uncertainty, as well as how risk aversion and uncertainty spread across financial markets. Although a recent study shows that monetary policy influences risk aversion and uncertainty in global stock markets, there are no studies on risk aversion and uncertainty spillover across stock, currency, and commodity markets. Following the method of Bekaert et al. (2013), we decompose the implied volatility indexes (VIX's) for the SP500, U.S. exchange rate, gold and crude oil into risk aversion and uncertainty. The decomposition requires estimating the expected volatility of the returns in each of these markets. We measure volatility with realized variance and estimate expected volatilities with regularized vector autoregression (VAR). Using a structural VAR, we show that monetary policy shocks affect uncertainty in the four markets and risk aversions in the stock and gold markets. We also show that risk aversion spreads, particularly from gold to other markets. We show uncertainties spread to all markets. Our findings are useful for both investors trying to make investment decisions in these markets and monetary policymakers trying to stabilize these markets.

In the second essay, we examine monetary policy and illiquidity connectedness across financial markets. Although illiquidity is a critical risk factor that explains financial market and real-economy outcomes, studies on illiquidity connectedness and the impact of monetary policy on illiquidity connectedness in financial markets are scarce. We use the Diebold and Yilmaz (2012, 2014) connectedness index to analyze illiquidity connectedness. We fit a SVAR to examine the relationship between monetary policy shocks and illiquidity connectedness. Our finding shows that the dynamic illiquidity connectedness in financial markets is substantial. Our study shows that, while bond markets are net illiquidity shock transmitters during noticeable financial and economic crises, other financial markets are net illiquidity shock receivers. Further, our study shows that tight monetary policy increases illiquidity connectedness in financial markets. The study contributes to literature devoted to understanding systemic risk by quantifying illiquidity connectedness in financial markets. Our research sheds new light on a potential mechanism for monetary policy transmission. By identifying assets vulnerable to illiquidity shocks, our study offers investors insight into dynamic portfolio diversification and monitoring opportunities.

In the third essay, we extend the work of Kilian and Park (2009) in two fundamental ways to examine the impact of oil shocks on stock returns. First, we use a data-driven identification approach to identify a SVAR to estimate the effect of oil price shocks on stock returns. Second, we incorporate both stock returns and monetary policy into the model. Our finding shows that the heteroskedastic innovation approach can successfully identify SVAR. The study findings also show that oil-specific demand shocks significantly affect real stock returns. The findings are useful for authorities concerned with the stability of the stock and oil markets and add to the literature on identifying a SVAR using data information content.

Access Setting

Dissertation-Open Access

Included in

Finance Commons