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Macroeconomic determinants of stock volatility and volatility premiums
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Corradi, Valentina, Distaso, Walter and Mele, Antonio (2012) Macroeconomic determinants of stock volatility and volatility premiums. Journal of Monetary Economics, Volume 60 (Number 2). pp. 203-220. doi:10.1016/j.jmoneco.2012.10.019
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Official URL: http://dx.doi.org/10.1016/j.jmoneco.2012.10.019
Abstract
How does stock market volatility relate to the business cycle? We develop, and estimate, a no-arbitrage model, and find that (i) the level and fluctuations of stock volatility are largely explained by business cycle factors and (ii) some unobserved factor contributes to nearly 20% to the overall variation in volatility, although not to its ups and downs. Instead, this “volatility of volatility” relates to the business cycle. Finally, volatility risk-premiums are strongly countercyclical, even more than stock volatility, and partially explain the large swings of the VIX index during the 2007–2009 subprime crisis, which our model captures in out-of-sample experiments.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Divisions: | Faculty of Social Sciences > Economics | ||||
| Journal or Publication Title: | Journal of Monetary Economics | ||||
| Publisher: | Elsevier BV | ||||
| ISSN: | 0304-3932 | ||||
| Official Date: | 2012 | ||||
| Dates: |
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| Volume: | Volume 60 | ||||
| Number: | Number 2 | ||||
| Page Range: | pp. 203-220 | ||||
| DOI: | 10.1016/j.jmoneco.2012.10.019 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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