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Financial Market Volatility: Informative In Predicting Recessions


Bank of Finland Discussion Paper No. 14/2001

25 Pages Posted: 23 Jul 2002  

Jan Annaert

University of Antwerp Department of Accounting & Finance; Antwerp Management School

Marc J. K. de Ceuster

University of Antwerp - Faculty of Applied Economics - City Campus

Nico Valckx

International Monetary Fund (IMF)

Date Written: August 8, 2001

Abstract

It is commonly agreed that the term spread and stock returns are useful in predicting recessions. We extend these empirical findings by examining interest rate and stock market volatility as additional recession indicators. Both risk-return analysis and the theory of investment under uncertainty provide a rationale for this extension. The results for the United States, Germany and Japan show that interest rate and stock return volatility contribute significantly to the forecasting of future recessions. This holds in particular for short term predictions.

Keywords: business cycles, stock market volatility, interest rate volatility, probit model

JEL Classification: E32, E44, C25

Suggested Citation

Annaert, Jan and de Ceuster, Marc J. K. and Valckx, Nico, Financial Market Volatility: Informative In Predicting Recessions (August 8, 2001). Bank of Finland Discussion Paper No. 14/2001. Available at SSRN: https://ssrn.com/abstract=317921 or http://dx.doi.org/10.2139/ssrn.317921

Jan Annaert (Contact Author)

University of Antwerp Department of Accounting & Finance ( email )

Faculty of Applied Economics
Prinsstraat 13
Antwerp, B-2000
Belgium

HOME PAGE: http://https://www.uantwerp.be/en/staff/jan-annaert/

Antwerp Management School ( email )

Het Brantijser
Sint-Jacobsmarkt 9-13
Antwerp, 2000
Belgium

Marc J. K. De Ceuster

University of Antwerp - Faculty of Applied Economics - City Campus ( email )

Office B-337
Prinsstraat 13
Antwerp, Antwerp 2000
Belgium
+ 32 3 220 41 24 (Phone)
+ 32 3 220 40 64 (Fax)

HOME PAGE: http://www.ua.ac.be/marc.deceuster

Nico Valckx

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.imf.org

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