Misalignments and Aggregated Volatility
12 Pages Posted: 2 Mar 2007
Date Written: March 2007
This paper considers forecasting regressions of "realized volatility" on a misalignment measure defined by the temporary deviations from the common trend between the earning-price ratio and current inflation. Results show that this misalignment measure is useful to predict stock market volatility at monthly horizons. The analysis also suggests a threshold effect where only misalignments exceeding a certain level of overvaluation have a positive and significant impact on future volatility.
Keywords: Realized Volatility, Volatility Forecasting, Asymmetry
JEL Classification: G12, C53
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