S&P 500 volatility,volatility regimes,and economic uncertainty |
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| Authors: | Bahram Adrangi Arjun Chatrath Kambiz Raffiee |
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| Affiliation: | 1. W.E. Nelson Professor of Financial Economics, University of Portland, Portland, Oregon, USA;2. Schulte Professor of Finance, University of Portland, Portland, Oregon, USA;3. Foundation Professor of Economics, College of Business University of Nevada, Reno, Reno, Nevada, USA |
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| Abstract: | We assess the relationship between regime-dependent volatility in S&P 500, economic policy uncertainty, the S&P 500 bull and bear sentiment spread (bb_sp), as well as the Chicago Board Options Exchange's VIX over the period 2000–2018. Our findings from two-covariate GARCH–MIDAS (GM) methodology, regime switching Markov Chain, and quantile regressions suggest that the association of realized volatility and sentiment varies across high- and low-volatility regimes and depends on investors’ sensitivity toward incidents of market uncertainties under these regimes. The findings suggest that these indicators may not be useful in volatility forecasting, especially under high-volatility regimes. |
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| Keywords: | economic policy uncertainty GARCH–MIDAS quantile regression regime switching Markov Chain regression VIX volatility |
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