Working Paper: NBER ID: w14269
Authors: Francis X. Diebold; Kamil Yilmaz
Abstract: Notwithstanding its impressive contributions to empirical financial economics, there remains a significant gap in the volatility literature, namely its relative neglect of the connection between macroeconomic fundamentals and asset return volatility. We progress by analyzing a broad international cross section of stock markets covering approximately forty countries. We find a clear link between macroeconomic fundamentals and stock market volatilities, with volatile fundamentals translating into volatile stock markets.
Keywords: Macroeconomic Volatility; Stock Market Volatility; International Finance
JEL Codes: E0; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP volatility (E39) | Stock market volatility (G17) |
| Stock market volatility (G17) | GDP volatility (E39) |
| Controlling for initial GDP per capita (F62) | Stock market volatility (G17) |
| Fundamental volatility (G17) | Stock market volatility (G17) |
| Fundamental volatility (e.g., GDP growth volatility) (E32) | Stock market volatility (G17) |