Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/127354
Authors: 
Conrad, Christian
Loch, Karin
Year of Publication: 
2012
Series/Report no.: 
Discussion Paper Series, University of Heidelberg, Department of Economics 535
Abstract: 
We investigate the relationship between long-term U.S. stock market risks and the macroeconomic environment using a two component GARCH-MIDAS model. Our results provide strong evidence in favor of counter-cyclical behavior of long-term stock market volatility. Among the various macro variables in our dataset the term spread, housing starts, corporate profits and the unemployment rate have the highest predictive ability for stock market volatility . While the term spread and housing starts are leading variables with respect to stock market volatility, for corporate profits and the unemployment rate expectations data from the Survey of Professional Forecasters regarding the future development are most informative. Our results suggest that macro variables carry information on stock market risk beyond that contained in lagged realized volatilities, in particular when it comes to long-term forecasting.
Subjects: 
Volatility Components
MIDAS
Survey Data
Macro Finance Link
JEL: 
C53
C58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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