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Stock market volatility: Identifying major drivers and the nature of their impact

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  • Mittnik, Stefan
  • Robinzonov, Nikolay
  • Spindler, Martin

Abstract

Financial-market risk, commonly measured in terms of asset-return volatility, plays a fundamental role in investment decisions, risk management and regulation. In this paper, we investigate a new modeling strategy that helps to better understand the forces that drive market risk. We use componentwise gradient boosting techniques to identify financial and macroeconomic factors influencing volatility and to assess the specific nature of their influence. Componentwise boosting is capable of producing parsimonious models from a, possibly, large number of predictors and—in contrast to other related techniques—allows a straightforward interpretation of the parameter estimates.

Suggested Citation

  • Mittnik, Stefan & Robinzonov, Nikolay & Spindler, Martin, 2015. "Stock market volatility: Identifying major drivers and the nature of their impact," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 1-14.
    • Handle: RePEc:eee:jbfina:v:58:y:2015:i:c:p:1-14
    DOI: 10.1016/j.jbankfin.2015.04.003
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    More about this item

    Keywords

    Componentwise boosting; Financial market risk; Forecasting; GARCH; Exponential GARCH; Variable selection;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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