Stock market volatility predictability in a data-rich world: New insight

Speaker：Ma Feng（Associate Professor of the School of Economics and Management of Southwest Jiaotong University）

Host：LIU Yanchu, Associate Professor, Lingnan College

Time and Date：14:30-16:30, May. 13, 2022

Venue: Room 902, MBA building

Language: English +Chinese

Meeting Link: Tencent meeting number: 457-303-184

Abstract:

This study develops a prevailing shrinkage method, LASSO with a Markov regime-switching model (MRS-LASSO), to predict US stock market volatility. Totally 17 well-known macroeconomic and financial factors are used in this research. The out-of-sample results reveal that the MRS-LASSO model can successfully predict volatility from statistical and economic viewpoints. We further investigate the predictability of MRS-LASSO in terms of the different market conditions, business cycles, and variable selection. Three factors (equity market returns, short-term reversal factor, and consumer sentiment index) are the most frequent predictors. To investigate the practical implications, we construct the expected variance risk premium (VRP) by using volatility forecasts generated from the LASSO and MRS-LASSO models to forecast future stock returns and find that those models are also powerful.

 Profile of the speaker:

Ma Feng, an associate professor of the School of Economics and Management of Southwest Jiaotong University, mainly research directions is financial measurement, forecast and risk management, and has achieved a series of results in the fields of financial market fluctuations and yield modeling forecasts. Published a number of academic papers. The main research results were published in Journal of Banking & Finance, Journal of Empirical Finance, International Journal of Forecasting, and "Journal of Management Sciences" and other high -level journals. A total of 6 papers are currently selected for ECONOMICS & Business (Economic and Commercial) ESI high -cited paper. He served as the youth editorial board of the journal of China Finance Review International, and 2020-2021 has been selected for two consecutive years of Ais Wei China.