CCER讨论稿:The Effects of Economic Uncertainty on Financial Volatility: A Comprehensive Investigation

发布日期:2019-05-10 11:15    来源:

E2019003                               2019-05-10

Zhuo Huang, Chen Tong, Tianyi Wang , Cong Zhang


We investigate the eects of economic uncertainty on the return volatility of nancial assets, including equities, bonds, foreign exchange and commodities. We use several popular measures of economic uncertainty, and find the uncertainty displays significant but heterogeneous eect on nancial volatility. Economic uncertainty constructed in a data rich environment shows strong eects for most nancial assets. In particular, the first principal component of the economic uncertainty measures provides a good balance of the eects. The eects of economic uncertainty on nancial volatility appear to be closely related to the state of the economy and are more pronounced around recession periods. Furthermore, our out-of-sample analysis shows that investors can use economic uncertainty to predict financial volatility, from both the statistical and economic perspectives.

Keywords: Economic uncertainty, Volatility forecasting, Realized volatility, Uncertainty measures

JEL: D80, E30, E44, G12, G17