Fundamental uncertainty and stock market volatility
Applied Financial Economics , Volume 18 - Issue 17 p. 1425- 1440
We provide empirical evidence on the link between stock market volatility and macroeconomic uncertainty. We show that US stock market volatility is significantly related to the dispersion in economic forecasts from participants in the Survey of Professional Forecasters over the period 1969 to 1996. This link is much stronger than that between stock market volatility and the more traditional time-series measures of macroeconomic volatility, but disappears from 1997 onwards. This coincides with a previously documented regime shift in stock volatility. Macroeconomic uncertainty is also able to explain and forecast the volatilities of the Fama and French factors SMB, HML and UMD.
|North America, United States, empirical analysis, macroeconomics, stock market, uncertainty analysis|
|Applied Financial Economics|
|Organisation||Erasmus School of Economics|
Arnold, I.J.M, & Vrugt, E.B. (2008). Fundamental uncertainty and stock market volatility. Applied Financial Economics, 18(17), 1425–1440. doi:10.1080/09603100701857922