Stock market volatility and jumps in times of uncertainty

Anastasios Megaritis, Nikolaos Vlastakis and Athanasios Triantafyllou

Journal of International Money and Finance, 2021, vol. 113, issue C

Abstract: In this paper we examine the predictive power of latent macroeconomic uncertainty on US stock market volatility and jump tail risk. We find that increasing macroeconomic uncertainty predicts a subsequent rise in volatility and price jumps in the US equity market. Our analysis shows that the latent macroeconomic uncertainty measure of Jurado et al. (2015) has the most significant and long-lasting impact on US stock market volatility and jumps in the equity market when compared to the respective impact of the VIX and other popular observable uncertainty proxies. Our study is the first to show that the latent macroeconomic uncertainty factor outperforms the VIX when forecasting volatility and jumps after the 2007 US Great Recession. We additionally find that latent macroeconomic uncertainty is a common forecasting factor of volatility and jumps of the intraday returns of S&P 500 constituents and has higher predictive power on the volatility and jumps of the equities which belong to the financial sector. Overall, our empirical analysis shows that stock market volatility is significantly affected by the rising degree of unpredictability in the macroeconomy, while it is relatively immune to shocks in observable uncertainty proxies.

Keywords: Jumps; Bipower variation; Realized volatility; Macroeconomic Uncertainty (search for similar items in EconPapers)
JEL-codes: C22 E32 G12 G17 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Stock market volatility and jumps in times of uncertainty (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:113:y:2021:i:c:s0261560621000048

DOI: 10.1016/j.jimonfin.2021.102355

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