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Hossein Asgharian. Photo.

Hossein Asgharian

Professor

Hossein Asgharian. Photo.

The effect of uncertainty on stock market volatility and correlation

Author

  • Hossein Asgharian
  • Charlotte Christiansen
  • Ai Jun HOU

Summary, in English

In this study, we use an extension of the heterogeneous autoregressive model to investigate the influence of time-varying risk aversion and macroeconomic, financial, and economic policy uncertainty measures on stock market volatility and correlation. Based on the findings, there is a stronger predictive ability of these variables at the monthly frequency than at the daily frequency. We also highlight the importance of risk aversion, which, alongside fundamental factors, reflects investor sentiment in predicting stock market volatility. Meanwhile, although uncertainty variables, such as economic uncertainty and financial uncertainty, are important, the widely used variable, economic policy uncertainty, is not helpful for predicting stock market volatility. Moreover, there is evidence of higher economic value and reduced portfolio risk when including risk aversion and economic uncertainty in international portfolio analysis.

Department/s

  • Department of Economics

Publishing year

2023

Language

English

Publication/Series

Journal of Banking and Finance

Volume

154

Document type

Journal article

Publisher

Elsevier

Topic

  • Economics

Keywords

  • Economic uncertainty
  • HAR model
  • International portfolio analysis
  • Stock market correlation
  • Stock market volatility

Status

Published

ISBN/ISSN/Other

  • ISSN: 1872-6372