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Fundamental uncertainty and stock market volatility

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Author Info

  • Ivo Arnold
  • Evert Vrugt

Abstract

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.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100701857922
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 18 (2008)
Issue (Month): 17 ()
Pages: 1425-1440

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Handle: RePEc:taf:apfiec:v:18:y:2008:i:17:p:1425-1440

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Cited by:
  1. Conrad, Christian & Loch, Karin, 2012. "Anticipating Long-Term Stock Market Volatility," Working Papers 0535, University of Heidelberg, Department of Economics.
  2. Albaity, Mohamed Shikh, 2011. "Impact of the monetary policy instruments on Islamic stock market index return," Economics Discussion Papers 2011-26, Kiel Institute for the World Economy.

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