Housing Market Variables and Predictability of State-Level Stock Market Volatility of the United States: Evidence from a GARCH-MIDAS Approach

Afees Salisu, Rangan Gupta and Oguzhan Cepni

No 202330, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper utilizes the generalized autoregressive conditional heteroscedasticity-mixed data sampling (GARCH-MIDAS) framework to predict the daily volatility of state-level stock returns in the United States (US), based on the monthly state and national housing price returns. We find that housing price returns generally tend to affect state-level volatility negatively. More importantly, the GARCH-MIDAS model, supplemented by these predictors, outperforms, in a statistically significant manner over short-, medium-, and long-term forecasting horizons, the benchmark GARCH-MIDAS model with realized volatility (GARCH-MIDAS-RV) for 90% of the states, with the performance of state and national housing returns being virtually inseparable. Such superior forecasting performances continue to hold when housing price returns is replaced with housing permits and housing market media attention indexes, suggesting an overwhelming role of housing market variables: traditional and behavioural, in forecasting state-level stock returns volatility. Our findings have important implications for investors and policymakers.

Keywords: Monthly Housing Market Variables; Daily State-Level Stock Returns Volatility; GARCH-MIDAS; Forecasting (search for similar items in EconPapers)
JEL-codes: C32 C53 G10 R31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2023-09
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202330

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().