Predictive models for disaggregate stock market volatility

This paper incorporates macroeconomic determinants into the forecasting model of industry-level stock return volatility in order to detect whether different macroeconomic factors can forecast the volatility of various industries. To explain different fluctuation characteristics among industries, we identified a set of macroeconomic determinants to examine their effects. The Clark and West (J Econom 138(1):291–311, 2007) test is employed to verify whether the new forecasting models, which vary among industries based on the in-sample results, make better predictions than the two benchmark models. Our results show that default return and default yield have a significant impact on stock return volatility. © 2017, Swiss Society for Financial Market Research.