Business Cycle and Stock Market Volatility: Are They Related?

27 Pages Posted: 7 Mar 2006 Last revised: 22 Mar 2008

See all articles by Roberto Casarin

Roberto Casarin

University Ca' Foscari of Venice - Department of Economics

Carmine Trecroci

University of Brescia

Date Written: September 2007

Abstract

We investigate the latent volatility structures of the fluctuations in the US business cycle and stock market valuations. The technical novelty of this work lies in the estimation of a Markov-switching stochastic-volatility model that allows for Bayesian sequential evaluation on both the parameters and the latent variables. Our findings point to macroeconomic and financial indicators following common volatility patterns,with a switch to lower variability occurring in the latter part of our sample in business cycle first and then in stock market variables.

Keywords: Markov Switching, Stochastic Volatility, Business Cycle, Equity Markets, Particle Filter

JEL Classification: C11, C15, C22, C63, G10, E32, E44

Suggested Citation

Casarin, Roberto and Trecroci, Carmine, Business Cycle and Stock Market Volatility: Are They Related? (September 2007). Available at SSRN: https://ssrn.com/abstract=888524 or http://dx.doi.org/10.2139/ssrn.888524

Roberto Casarin

University Ca' Foscari of Venice - Department of Economics ( email )

San Giobbe 873/b
Venice, 30121
Italy
+39 030.298.91.49 (Phone)
+39 030.298.88.37 (Fax)

HOME PAGE: http://sites.google.com/view/robertocasarin

Carmine Trecroci (Contact Author)

University of Brescia ( email )

Via San Faustino 74B
Brescia, 25122
Italy

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