Is Financial Market Volatility Informative to Predict Recessions?

DNB Staff Report No. 93

31 Pages Posted: 6 Sep 2003

See all articles by Nico Valckx

Nico Valckx

International Monetary Fund (IMF)

Marc J. K. de Ceuster

University of Antwerp - Faculty of Applied Economics - City Campus

Jan Annaert

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

Date Written: October 2002

Abstract

It is commonly agreed that the term spread and stock returns are useful in predicting recessions. We investigate whether interest rate and stock market volatility play an additional role as recession indicators. Both risk-return analysis and the theory of investment under uncertainty provide a rationale for this extension. The results show that interest rate and stock return volatility do not contribute systematically to the forecasting of recessions in the US using the NBER definition, but do so, to some extent, when using the OECD dating. In Germany and Japan, using a variety of volatility indicators, the evidence is slightly more favourable.

Keywords: Business cycle forecasting, stock market volatility, interest rate volatility, probit

JEL Classification: E32, E44, C25

Suggested Citation

Valckx, Nico and de Ceuster, Marc J. K. and Annaert, Jan, Is Financial Market Volatility Informative to Predict Recessions? (October 2002). DNB Staff Report No. 93. Available at SSRN: https://ssrn.com/abstract=429482 or http://dx.doi.org/10.2139/ssrn.429482

Nico Valckx (Contact Author)

International Monetary Fund (IMF) ( email )

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

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

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

Jan Annaert

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/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

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