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A Comprehensive Look at Financial Volatility Prediction by Economic Variables

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Author Info

  • Charlotte Christiansen

    ()
    (School of Economics and Management, Aarhus University and CREATES)

  • Maik Schmeling

    ()
    (Department of Economics, Leibniz Universität Hannover)

  • Andreas Schrimpf

    ()
    (Aarhus University and CREATES)

Abstract

What drives volatility on financial markets? This paper takes a comprehensive look at the predictability of financial market volatility by macroeconomic and financial variables. We go beyond forecasting stock market volatility (by large the focus in previous studies) and additionally investigate the predictability of foreign exchange, bond, and commodity volatility by means of a data-rich modeling methodology which is able to handle a potentially large number of predictor variables. In line with previous research, we find relatively little economically meaningful predictability of stock market volatility. By contrast, volatility in foreign exchange, bond, and commodity markets appears predictable by macro and financial predictors both in-sample and out-of-sample.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2010-58.

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Length: 39
Date of creation: 02 Sep 2010
Date of revision:
Handle: RePEc:aah:create:2010-58

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Realized volatility; Forecasting; Data-rich modeling; Bayesian Model Averaging; Model Uncertainty.;

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References

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Citations

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Cited by:
  1. Charlotte Christiansen & Jonas Nygaard Eriksen & Stig V. Møller, 2013. "Forecasting US Recessions: The Role of Sentiments," CREATES Research Papers 2013-14, School of Economics and Management, University of Aarhus.
  2. Sévi, Benoît, 2013. "An empirical analysis of the downside risk-return trade-off at daily frequency," Economic Modelling, Elsevier, vol. 31(C), pages 189-197.
  3. Dimpfl, Thomas & Jank, Stephan, 2011. "Can Internet search queries help to predict stock market volatility?," University of Tuebingen Working Papers in Economics and Finance 18, University of Tuebingen, Faculty of Economics and Social Sciences.
  4. Nektarios Aslanidis & Charlotte Christiansen & Christos S. Savva, 2013. "Risk-Return Trade-Off for European Stock Markets," CREATES Research Papers 2013-31, School of Economics and Management, University of Aarhus.
  5. Becker, Christoph & Schmidt, Wolfgang M., 2013. "Stressing correlations and volatilities — A consistent modeling approach," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 174-194.
  6. Conrad, Christian & Loch, Karin, 2012. "Anticipating Long-Term Stock Market Volatility," Working Papers 0535, University of Heidelberg, Department of Economics.

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