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Breaks and Persistency: Macroeconomic Causes of Stock Market VolatilityClaudio MoranaUniversità di Milano Bicocca; International Centre for Economic Research (ICER); Center for Economic Research on Pensions and Welfare Policies (CeRP); Fondazione Eni Enrico Mattei (FEEM) Andrea BeltrattiBocconi University - Department of Finance Journal of Econometrics, Vol. 131, No. 2, pp. 151-177, April 2006 Abstract: In the paper we study the relationship between macroeconomic and stock market volatility, using S&P500 data for the period 1970-2001. We find evidence of a twofold linkage between stock market and macroeconomic volatility. Firstly, the break process in the volatility of stock returns is associated with the break process in the volatility of the Federal funds rate and M1 growth. Secondly, two common long memory factors, mainly associated with output and inflation volatility, drive the break-free volatility series. While stock market volatility also affects macroeconomic volatility, the causality direction is stronger from macroeconomic to stock market volatility.
Keywords: Stock market volatility, macroeconomic volatility, long memory, fractional cointegration, structural change JEL Classification: C32, F30, G10 Accepted Paper SeriesDate posted: March 9, 2006Suggested CitationContact Information
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