Author
Listed:
- Anastasios Megaritis
- Alexandros Kontonikas
- Nikolaos Vlastakis
- Athanasios Triantafyllou
Abstract
We examine the forecasting power of the volatility of the slope of the US Treasury yield curve on US stock market volatility. Consistent with theoretical asset pricing models, we find that the volatility of the slope of the term structure of interest rates has significant forecasting power on stock market volatility for forecasting horizon ranging from 1 up to 12 months. Moreover, the term structure volatility has significant forecasting power when used for volatility predictions of the intra‐day returns of S&P500 constituents, with the predictive power being higher for stocks belonging to the telecommunications and financial sector. Our forecasting models show that the forecasting power of yield curve volatility is higher to and absorbs that of Economic Policy Uncertainty and Monetary Policy Uncertainty, showing that the main channel through which the yield curve volatility affects the stock market is not only related with uncertainty about monetary policy actions or policy rates, but also with uncertainty regarding the future cash flows and dividend payments of US equities. Lastly, we show that the forecasting power of term structure volatility significantly increases during the post‐2007 Great recession period which coincides with the Fed adopting unconventional monetary policies to stimulate the economy.
Suggested Citation
Anastasios Megaritis & Alexandros Kontonikas & Nikolaos Vlastakis & Athanasios Triantafyllou, 2025.
"The term structure of interest rates as predictor of stock market volatility,"
International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 3212-3229, July.
Handle:
RePEc:wly:ijfiec:v:30:y:2025:i:3:p:3212-3229
DOI: 10.1002/ijfe.3029
Download full text from publisher
Corrections
All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:30:y:2025:i:3:p:3212-3229. See general information about how to correct material in RePEc.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
We have no bibliographic references for this item. You can help adding them by using this form .
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .
Please note that corrections may take a couple of weeks to filter through
the various RePEc services.