Do Periods of Extreme Asset Price Volatility Signal the Beginning of a Recession? An International Comparison

Delfina Ricordi (), Martin Sola, Fabio Spagnolo () and Nicola Spagnolo

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: This paper investigates the relationship between financial markets and real economic activity. Based on a bivariate Markov switching model, we propose a procedure for analysing links between stock market volatility and output growth. The method provides a convenient way of interpreting the predictive content of different series’ first and second moments. We examine and discuss an empirical application of this procedure for a subset of developed countries (U.S., U.K., Japan, Germany, Italy and France). In the empirical analysis, we test whether changes in stock market volatility precede the change in the state of output growth.

Keywords: Volatility of Stock Prices; Booms and Recessions; Markov Switching. (search for similar items in EconPapers)
JEL-codes: C32 C52 C58 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2025-04
New Economics Papers: this item is included in nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2025_03

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