IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Comprehensive Look at Financial Volatility Prediction by Economic Variables

  • 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)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://ftp.econ.au.dk/creates/rp/10/rp10_58.pdf
Download Restriction: no

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

as
in new window

Length: 39
Date of creation: 02 Sep 2010
Date of revision:
Handle: RePEc:aah:create:2010-58
Contact details of provider: Web page: http://www.econ.au.dk/afn/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Tim Bollerslev & Tzuo Hao & George Tauchen, 2008. "Expected Stock Returns and Variance Risk Premia," CREATES Research Papers 2008-48, School of Economics and Management, University of Aarhus.
  2. Wright, Jonathan H., 2008. "Bayesian Model Averaging and exchange rate forecasts," Journal of Econometrics, Elsevier, vol. 146(2), pages 329-341, October.
  3. Amit Goyal & Ivo Welch, 1999. "Predicting the Equity Premium with Dividend Ratios," Yale School of Management Working Papers amz2437, Yale School of Management, revised 01 Nov 2002.
  4. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2004. "The Cross-Section of Volatility and Expected Returns," NBER Working Papers 10852, National Bureau of Economic Research, Inc.
  5. Francis X. Diebold & Kamil Yılmaz, 2007. "Macroeconomic Volatility and Stock Market Volatility,World-Wide," Koç University-TUSIAD Economic Research Forum Working Papers 0711, Koc University-TUSIAD Economic Research Forum.
  6. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  7. Schrimpf, Andreas, 2008. "International Stock Return Predictability Under Model Uncertainty," ZEW Discussion Papers 08-048, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Markus K. Brunnermeier & Stefan Nagel & Lasse H. Pedersen, 2009. "Carry Trades and Currency Crashes," NBER Chapters, in: NBER Macroeconomics Annual 2008, Volume 23, pages 313-347 National Bureau of Economic Research, Inc.
  9. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," NBER Working Papers 13189, National Bureau of Economic Research, Inc.
  10. Diebold, Francis X. & Yilmaz, Kamil, 2007. "Measuring financial asset return and volatility spillovers, with application to global equity markets," CFS Working Paper Series 2007/02, Center for Financial Studies (CFS).
  11. Hanno Lustig & Nikolai Roussanov & Adrien Verdelhan, 2010. "Countercyclical Currency Risk Premia," NBER Working Papers 16427, National Bureau of Economic Research, Inc.
  12. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
  13. Wai Mun Fong & Kim Hock See, 2001. "Modelling the conditional volatility of commodity index futures as a regime switching process," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(2), pages 133-163.
  14. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December.
  15. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," NBER Working Papers 8160, National Bureau of Economic Research, Inc.
  16. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  17. Pesaran, M. Hashem & Timmermann, Allan, 2007. "Selection of estimation window in the presence of breaks," Journal of Econometrics, Elsevier, vol. 137(1), pages 134-161, March.
  18. Ilan Cooper, 2009. "Time-Varying Risk Premiums and the Output Gap," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2601-2633, July.
  19. Fornari Fabio & Mele Antonio, 2013. "Financial Volatility and Economic Activity," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 2, pages 155-198, December.
  20. Marcelle Chauvet & Zeynep Senyuz & Emre Yoldas, 2013. "What does financial volatility tell us about macroeconomic fluctuations?," Finance and Economics Discussion Series 2013-61, Board of Governors of the Federal Reserve System (U.S.).
  21. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  22. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  23. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  24. Nick Roussanov & Adrien Verdelhan & Hanno Lustig, 2008. "Common Risk Factors in Currency Markets," 2008 Meeting Papers 711, Society for Economic Dynamics.
  25. Cem Cakmakli & Dick van Dijk, 2010. "Getting the Most out of Macroeconomic Information for Predicting Stock Returns and Volatility," Tinbergen Institute Discussion Papers 10-115/4, Tinbergen Institute.
  26. Gregory W. Brown & Michael T. Cliff, 2005. "Investor Sentiment and Asset Valuation," The Journal of Business, University of Chicago Press, vol. 78(2), pages 405-440, March.
  27. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  28. Luboš Pástor & Robert F. Stambaugh, . "Liquidity Risk and Expected Stock Returns," CRSP working papers 531, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  29. Mele, Antonio, 2007. "Asymmetric stock market volatility and the cyclical behavior of expected returns," Journal of Financial Economics, Elsevier, vol. 86(2), pages 446-478, November.
  30. Christiansen, Charlotte & Ranaldo, Angelo & Söderlind, Paul, 2009. "The Time-Varying Systematic Risk of Carry Trade Strategies," CEPR Discussion Papers 7345, C.E.P.R. Discussion Papers.
  31. Menkhoff, Lukas & Sarno, Lucio & Schmeling, Maik & Schrimpf, Andreas, 2011. "Carry Trades and Global Foreign Exchange Volatility," CEPR Discussion Papers 8291, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:aah:create:2010-58. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.