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‘Déjà vol’ revisited: Survey forecasts of macroeconomic variables predict volatility in the cross-section of industry portfolios

Conrad, Christian ; Glas, Alexander

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Abstract

We investigate the question of whether macroeconomic variables contain information about future stock volatility beyond that contained in past volatility. We show that forecasts of GDP growth from the Federal Reserve's Survey of Professional Forecasters predict volatility in a cross-section of 49 industry portfolios. The expectation of higher growth rates is associated with lower stock volatility. Our results are in line with both counter-cyclical volatility in dividend news as well as in expected returns. Inflation forecasts predict higher or lower stock volatility depending on the state of the economy and the stance of monetary policy. Forecasts of higher unemployment rates are good news for stocks during expansions and go along with lower stock volatility. Our results hold in- as well as out-of-sample and pass various robustness checks.

Item Type: Working paper
Series Name: Discussion Paper Series, University of Heidelberg, Department of Economics
Volume: 0655
Place of Publication: Heidelberg
Date Deposited: 01 Oct 2018 10:21
Date: September 2018
Number of Pages: 57
Faculties / Institutes: The Faculty of Economics and Social Studies > Dean's Office of The Faculty of Economics and Social Studies
The Faculty of Economics and Social Studies > Institute of Political Science
The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: Realized volatility, Survey of Professional Forecasters, forecast evaluation, predictive regressions
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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