The effect of financial, macroeconomic and sentimental factors on stock market volatility

Anna Czapkiewicz; Agnieszka Choczyńska

doi:10.5604/01.3001.0014.8492

Anna Czapkiewicz AGH University of Science and Technology, Faculty of Management, ul. Antoniego Gramatyka 10, 30-067 Kraków, Poland ORCID:https://orcid.org/0000-0002-6144-8381 , Agnieszka Choczyńska Student of AGH University of Science and Technology, Faculty of Management, ul. Antoniego Gramatyka 10, 30-067 Kraków, Poland Przegląd Statystyczny. Statistical Review, vol. 67, 2020, 4, pages: 274-293 Published online: 31 May 2021 DOI 10.5604/01.3001.0014.8492

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ARTICLE

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ABSTRACT

The aim of this paper is to find economic factors that could be helpful in explaining the market’s shifts between periods of prosperity and crisis. The study took into account the main stock indices from developed markets of the USA, Germany and Great Britain, and from two emerging markets, i.e. Poland and Turkey. The analysis confirms the existence of two different states of volatility in these markets, namely the state with a positive returns’ mean and low volatility, and the state with a negative or insignificant mean and high volatility. The Markov-switching model with a dynamic probability matrix was applied in the study. The subject of the analysis was the impact of domestic and global factors, such as VIX and TED spread, oil prices, sentiment indices (ZEW), and macroeconomic indices (unemployment, longterm interest rate, CPI), on the probability of switching between the states. The authors concluded that in all the examined countries, changes in long-term interest rates have an influence on market returns. However, the direction of this impact is different for developed and emerging markets. As regards developed markets, high prices of oil, 10-year bonds, and the ZEW index can suggest a high probability of the countries remaining in the first state, whereas an increase in the VIX index and the TED spread significantly reduces the probability of staying in this state. The other studied factors proved to be rather local in nature.

KEYWORDS

regime shift, equity volatility, macroeconomic factors, sentimental factors, financial markets, TVPMS model

JEL

C52, G11, G15, G32

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