Stock Market Volatility and Economic Factors
This paper examines the ability of rational economic factors to explain stock market volatility. A simple model of the economy under uncertainty identifies four determinants of stock market volatility: uncertainty about the price level, the riskless rate of interest, the risk premium on equity and t...
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Published in | Review of quantitative finance and accounting Vol. 17; no. 1; pp. 5 - 26 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
New York
Springer Nature B.V
01.07.2001
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Subjects | |
Online Access | Get full text |
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Summary: | This paper examines the ability of rational economic factors to explain stock market volatility. A simple model of the economy under uncertainty identifies four determinants of stock market volatility: uncertainty about the price level, the riskless rate of interest, the risk premium on equity and the ratio of expected profits to expected revenues. In initial tests these variables have significant explanatory power and account for over 50 per cent of the variation in market volatility from 1929 to 1989. When the regression coefficients are allowed to vary over time using cluster regression, the four factors explain over 90 per cent of the variation in market volatility. The results are useful in explaining the past behavior of stock market volatility and in forecasting future volatility. [PUBLICATION ABSTRACTS] |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0924-865X 1573-7179 |
DOI: | 10.1023/A:1011207919894 |