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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.

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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
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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  28. Lukas Menkhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2012. "Carry Trades and Global Foreign Exchange Volatility," Journal of Finance, American Finance Association, vol. 67(2), pages 681-718, 04.
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