Premium
Can Stock Volatility Be Benign? New Measurements and Macroeconomic Implications
Author(s) -
HUANG YUFAN,
LUO SUI
Publication year - 2020
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12626
Subject(s) - volatility (finance) , economics , stock (firearms) , monetary economics , stock market , econometrics , stock price , volatility risk premium , volatility smile , shock (circulatory) , financial economics , stock market volatility , implied volatility , engineering , medicine , mechanical engineering , paleontology , horse , series (stratigraphy) , biology
Abstract We find nonsynchronized movements of two new measures of financial market uncertainty—good and bad volatility—which are based on the maximum and minimum stock prices within a month. Good (bad) volatility is associated with better (worse) expectations about the future economic situation and clearly signals acceleration (deceleration) in economic activity. The VAR results indicate that (i) output, employment, and stock price plummet rapidly in response to a bad volatility shock, while their responses to a good volatility shock are modest, and (ii) bad volatility shocks explain the bulk of economic activity and stock price fluctuations in the medium run.