Breaks and Persistency: Macroeconomic Causes of Stock Market Volatility

Posted: 9 Mar 2006  

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS); Center for Economic Research on Pensions and Welfare Policies (CeRP); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Andrea Beltratti

Bocconi University - Department of Finance

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

Suggested Citation

Morana, Claudio and Beltratti , Andrea, Breaks and Persistency: Macroeconomic Causes of Stock Market Volatility. Journal of Econometrics, Vol. 131, No. 2, pp. 151-177, April 2006. Available at SSRN: https://ssrn.com/abstract=888664

Claudio Morana

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)

Università degli Studi di Milano-Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Andrea Beltratti (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Paper statistics

Abstract Views
970