Market Volatility and Macroeconomic Factors

Gao, Kang (2012) Market Volatility and Macroeconomic Factors. [Dissertation (University of Nottingham only)] (Unpublished)

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This study investigates the relationship between macroeconomic factors and the stock market volatility. Following macroeconomic variables are used: industrial production, inflation rate, interest rate and exchange rate. Shanghai Exchange Composite Index, Standard & Poor’s 500, FTSE 100 and Deutscher Aktien Index are chosen to represent the China, United States, United Kingdom and Germany market. Monthly time series data of mentioned variables are the time period is from November 2001 to April 2012.

The volatility of stock market is calculated by three methods: standard deviation, exponentially weighted moving average (EWMA) and general autoregressive conditional heteroskedasticity (GARCH). Before application of GARCH model, Lagrange Multiplier test is used to find whether there is ARCH effect in stock market return. Static time series regression is chosen to build the linear model between macroeconomic variables and stock market volatility. The coefficient and p-value is used to deduce their relationship. Exchange rate and inflation rate have significant positive effect on Shanghai Exchange and interest rate has significant negative influence on Standard & Poor’s 500, FTSE 100 and Deutscher Aktien Index. Augmented Dickey Fuller test used to examine existence of unit root. Engle-Granger cointegration test is used to inspect whether there are long-term connection between stock market index and economic factors and.

Key words: volatility, macroeconomic, GARCH, ARCH, EWMA

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 08 Apr 2013 11:14
Last Modified: 13 May 2016 01:56

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