Macroeconomic Volatility and Stock Market Volatility, World‐Wide*

This chapter examines the cross-sectional relationship between stock market returns and volatility and a host of macroeconomic fundamentals. The exploration is motivated by financial economic theory, which suggests that the volatility of real activity should be related to stock market volatility. In addition, and crucially, the empirical approach exploits cross-sectional variation in fundamental and stock market volatilities, to uncover links that would likely be lost in a pure time series analysis.

This chapter examines the cross-sectional relationship between stock market returns and volatility and a host of macroeconomic fundamentals. The exploration is motivated by financial economic theory, which suggests that the volatility of real activity should be related to stock market volatility. In addition, and crucially, the empirical approach exploits cross-sectional variation in fundamental and stock market volatilities, to uncover links that would likely be lost in a pure time series analysis.