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Stock market volatility: Identifying major drivers and the nature of their impact

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  • Mittnik, Stefan
  • Robinzonov, Nikolay
  • Spindler, Martin

Abstract

Financial-market risk, commonly measured in terms of asset-return volatility, plays a fundamental role in investment decisions, risk management and regulation. In this paper, we investigate a new modeling strategy that helps to better understand the forces that drive market risk. We use componentwise gradient boosting techniques to identify financial and macroeconomic factors influencing volatility and to assess the specific nature of their influence. Componentwise boosting is capable of producing parsimonious models from a, possibly, large number of predictors and—in contrast to other related techniques—allows a straightforward interpretation of the parameter estimates.

Suggested Citation

  • Mittnik, Stefan & Robinzonov, Nikolay & Spindler, Martin, 2015. "Stock market volatility: Identifying major drivers and the nature of their impact," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 1-14.
  • Handle: RePEc:eee:jbfina:v:58:y:2015:i:c:p:1-14
    DOI: 10.1016/j.jbankfin.2015.04.003
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    Cited by:

    1. repec:eee:ecmode:v:72:y:2018:i:c:p:249-259 is not listed on IDEAS
    2. Vo, Xuan Vinh, 2016. "Does institutional ownership increase stock return volatility? Evidence from Vietnam," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 54-61.
    3. Döpke, Jörg & Fritsche, Ulrich & Pierdzioch, Christian, 2017. "Predicting recessions with boosted regression trees," International Journal of Forecasting, Elsevier, vol. 33(4), pages 745-759.
    4. repec:eee:empfin:v:44:y:2017:i:c:p:158-176 is not listed on IDEAS
    5. Jörg Döpke & Ulrich Fritsche & Christian Pierdzioch, 2015. "Predicting Recessions in Germany With Boosted Regression Trees," Macroeconomics and Finance Series 201505, University of Hamburg, Department of Socioeconomics.

    More about this item

    Keywords

    Componentwise boosting; Financial market risk; Forecasting; GARCH; Exponential GARCH; Variable selection;

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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