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Can Stock Volatility Be Benign? New Measurements and Macroeconomic Implications

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  • YU‐FAN HUANG
  • SUI LUO

Abstract

We find nonsynchronized movements of two new measures of financial market uncertainty—good and bad volatility—which are based on the maximum and minimum stock prices within a month. Good (bad) volatility is associated with better (worse) expectations about the future economic situation and clearly signals acceleration (deceleration) in economic activity. The VAR results indicate that (i) output, employment, and stock price plummet rapidly in response to a bad volatility shock, while their responses to a good volatility shock are modest, and (ii) bad volatility shocks explain the bulk of economic activity and stock price fluctuations in the medium run.

Suggested Citation

  • Yu‐Fan Huang & Sui Luo, 2020. "Can Stock Volatility Be Benign? New Measurements and Macroeconomic Implications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 933-950, June.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:4:p:933-950
    DOI: 10.1111/jmcb.12626
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    References listed on IDEAS

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    Cited by:

    1. Huang, Yu-Fan & Liao, Wenting & Wang, Taining, 2024. "Does US financial uncertainty spill over through the (asymmetric) international credit channel? The role of market expectations," Journal of International Money and Finance, Elsevier, vol. 148(C).

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