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Macroeconomic determinants of stock volatility and volatility premiums

Corradi, V, Distaso, W and Mele, A (2013) Macroeconomic determinants of stock volatility and volatility premiums Journal of Monetary Economics, 60 (2). pp. 203-220.

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Abstract

How does stock market volatility relate to the business cycle? We develop, and estimate, a no-arbitrage model, and find that (i) the level and fluctuations of stock volatility are largely explained by business cycle factors and (ii) some unobserved factor contributes to nearly 20% to the overall variation in volatility, although not to its ups and downs. Instead, this "volatility of volatility" relates to the business cycle. Finally, volatility risk-premiums are strongly countercyclical, even more than stock volatility, and partially explain the large swings of the VIX index during the 2007-2009 subprime crisis, which our model captures in out-of-sample experiments. © 2012 Elsevier B.V.

Item Type: Article
Authors :
NameEmailORCID
Corradi, Vv.corradi@surrey.ac.ukUNSPECIFIED
Distaso, WUNSPECIFIEDUNSPECIFIED
Mele, AUNSPECIFIEDUNSPECIFIED
Date : 1 March 2013
Identification Number : 10.1016/j.jmoneco.2012.10.019
Depositing User : Symplectic Elements
Date Deposited : 16 May 2017 15:27
Last Modified : 17 May 2017 14:35
URI: http://epubs.surrey.ac.uk/id/eprint/819739

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