Economic indicators and stock market volatility in an emerging economy

Dohyun Chun, Hoon Cho and Doojin Ryu

Economic Systems, 2020, vol. 44, issue 2

Abstract: By analyzing the daily realized volatility series calculated from intraday stock price observations, this study examines the direct causality between one-day-ahead aggregate stock market volatility and several economic and financial indicators in the Korean market, a leading emerging market. Using the predictive regression and superior predictive ability tests, we find that the model-free implied volatility index (VKOSPI) and stock market indicators both lead the daily market volatility. However, daily economic indicators provide no predictive information beyond that contained in historical volatility. Though in-sample causality does not guarantee a better out-of-sample forecasting performance, the VKOSPI and combinations of predictors exhibit significant predictive ability regardless of the time period. Our study verifies the information role of the VKOSPI as an indicator of daily market risk.

Keywords: Economic indicators; Market volatility; Predictive regression; Superior predictive ability; Volatility forecasting (search for similar items in EconPapers)
JEL-codes: C52 C58 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:44:y:2020:i:2:s0939362518305594

DOI: 10.1016/j.ecosys.2020.100788

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