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A Comprehensive Look at Financial Volatility Prediction by Economic Variables

Author

Listed:
  • 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.

Suggested Citation

  • Charlotte Christiansen & Maik Schmeling & Andreas Schrimpf, 2010. "A Comprehensive Look at Financial Volatility Prediction by Economic Variables," CREATES Research Papers 2010-58, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2010-58
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    References listed on IDEAS

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    More about this item

    Keywords

    Realized volatility; Forecasting; Data-rich modeling; Bayesian Model Averaging; Model Uncertainty.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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