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Inflation and output as predictors of stock returns and volatility: international evidence

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  • Nicole Davis
  • Ali Kutan

Abstract

Using monthly post-WWII data from 13 developed and developing countries and a battery of GARCH models, the influential study of Schwert's (Journal of Finance, 54 (5), 1115-1153, 1989) on US stock market volatility is extended to an international setting. In line with the evidence reported in Schwert (1989), it is found that macroeconomic volatility, measured by movements in inflation and real output, have a weak predictive power for stock market volatility and returns. The findings suggest that there is no strong support for the Fisher effect in international stock returns. Moreover, with the exception of a few countries, a procyclical monetary policy response seems evident in data during the sample period.

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  • Nicole Davis & Ali Kutan, 2003. "Inflation and output as predictors of stock returns and volatility: international evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 13(9), pages 693-700.
    • Handle: RePEc:taf:apfiec:v:13:y:2003:i:9:p:693-700
    DOI: 10.1080/09603100210139429
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    6. Ricardo M. Sousa, 2011. "Wealth, Labour Income, Stock Returns and Government Bond Yields, and Financial Stress in the Euro Area," NIPE Working Papers 22/2011, NIPE - Universidade do Minho.
    7. Charles K.D. Adjasi, 2009. "Macroeconomic uncertainty and conditional stock-price volatility in frontier African markets: Evidence from Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 10(4), pages 333-349, August.
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    14. Yaya, OlaOluwa S & Shittu, Olanrewaju I, 2010. "On the Impact of Inflation and Exchange Rate on Conditional Stock Market Volatility: A Re-Assessment," MPRA Paper 88759, University Library of Munich, Germany.
    15. Zhang Wu & Terence Tai-Leung Chong, 2021. "Does the macroeconomy matter to market volatility? Evidence from US industries," Empirical Economics, Springer, vol. 61(6), pages 2931-2962, December.
    16. Mercan Hatipoglu, 2023. "What Determined Stock Returns in Turkey from 1990 to 2022: Evidence from Structural Break Regression," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(73-1), pages 185-202, June.
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    19. Habibullah, M.S. & Baharom, A.H. & Fong, Kin Hing, 2009. "Predictive Content of Output and Inflation For Stock Returns and Volatility: Evidence from Selected Asian Countries," MPRA Paper 14114, University Library of Munich, Germany.
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