Title: The role of economic and financial indicators in forecasting stock volatility
Authors: Marwan Izzeldin - Lancaster University Management School (United Kingdom)
Aya Ghalayini - Lancaster University (United Kingdom) [presenting]
Abstract: Financial volatility is an essential input for investors and policymakers alike. Therefore, the different macroeconomic and financial determinants that drive financial volatility are emphasized. We revisit the relationships between stock market volatility and different factors using recent models that allow for the combination of variables with different frequencies. It is shown that HARX using Chow-Lin interpolations method supersedes MFVAR in terms of forecastability of the financial volatility. The study is performed on a multi-dimensional scale where three forecasting horizons (daily, weekly, and monthly), three regimes (pre-crisis, crisis, and post-crisis), two volatility measures (RV and BV), and three loss functions (MSE, HMSE, and MAE) are examined. The data involves SPY and two stocks from each of the ten business sectors of the US economy.