Corradi, Valentina, Distaso, Walter and Mele, Antonio (2013) Macroeconomic determinants of stock volatility and volatility premiums. Journal of monetary economics, 60 (2). pp. 203-220. ISSN 0304-3932
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.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.elsevier.com/wps/find/journaldescriptio... |
| Additional Information: | © 2012 Elsevier B.V. |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Sets: | Departments > Finance |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/37399/ |
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