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An empirical characterization of volatility in the German stock market

Author

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  • Leonardo Quero Virla

    (Otto-Friedrich-Universität Bamberg (Faculty of Social Sciences, Economics, and Business Administration))

Abstract

Most previous studies on the volatility of returns in the German stock market have focused on issues of forecasting and predictability without further exploration of the economic determinants behind volatility over time. Using a GARCH model and a quantile regression framework, this paper expands the existing literature by conducting not only an estimation of volatility but also an empirical analysis of its economic determinants between 1991 and 2022. The main findings indicate that the volatility of the DAX is mainly influenced by the volatility of the US stock market, as well as by the assessment of the business situation and expectations of German industrial firms. Moreover, volatility reached its peak between 2001 and 2004 potentially due to Germany’s longest recession streak after the reunification. Nevertheless, recessions alone cannot uniformly explain volatility across all subsamples, and likewise, the relevance of other macroeconomic and financial factors is limited to specific cases. Overall, the findings stress the importance of appropriate distributional assumptions when analyzing extreme financial events.

Suggested Citation

  • Leonardo Quero Virla, 2023. "An empirical characterization of volatility in the German stock market," SN Business & Economics, Springer, vol. 3(7), pages 1-19, July.
  • Handle: RePEc:spr:snbeco:v:3:y:2023:i:7:d:10.1007_s43546-023-00508-2
    DOI: 10.1007/s43546-023-00508-2
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    More about this item

    Keywords

    Asset prices; Macro-financial linkages; Expectations; Quantile regression;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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