Can Stock Volatility Be Benign? New Measurements and Macroeconomic Implications

Yu‐fan Huang and Sui Luo

Journal of Money, Credit and Banking, 2020, vol. 52, issue 4, 933-950

Abstract: We find nonsynchronized movements of two new measures of financial market uncertainty—good and bad volatility—which are based on the maximum and minimum stock prices within a month. Good (bad) volatility is associated with better (worse) expectations about the future economic situation and clearly signals acceleration (deceleration) in economic activity. The VAR results indicate that (i) output, employment, and stock price plummet rapidly in response to a bad volatility shock, while their responses to a good volatility shock are modest, and (ii) bad volatility shocks explain the bulk of economic activity and stock price fluctuations in the medium run.

Date: 2020
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https://doi.org/10.1111/jmcb.12626

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:52:y:2020:i:4:p:933-950

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