Stock market volatility and international business cycle dynamics: Evidence from OECD economies

Nam Vu

Journal of International Money and Finance, 2015, vol. 50, issue C, 1-15

Abstract: How does a surprise movement in stock market volatility affect our forecasts of future output across countries? This paper studies the time series and cross-sectional responses of output to variation in stock market volatility across 27 countries over 40 years, controlling for a number of country-specific characteristics. High levels of stock market volatility are detrimental to future output growth not only after financial crises as previously emphasized in the literature, but also in non-crisis periods. Output growth and interest rates react negatively to a random shock to volatility and revert to their means quickly thereafter. Moreover, these results are robust after controlling for economic policy uncertainty, the level of financial development, and the direction of the market.

Keywords: Stock market volatility; Output growth; Heterogeneous panel causality (search for similar items in EconPapers)
JEL-codes: C23 E4 E6 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:50:y:2015:i:c:p:1-15

DOI: 10.1016/j.jimonfin.2014.08.003

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