In the paper we study the relationship between macroeconomic and
stock market volatility, using S&P500 data for the period 1970-2001.
We find weak evidence of long memory in volatility once structural
change is accounted for and a twofold linkage between stock market
and macroeconomic volatility: macroeconomic volatility explains
the persitent dynamics in stock market volatility, while stock market
volatility has significant but short lived effects on output and inflation
volatility.
Keywords: stock market volatility, macroeconomic volatility, long
memory, structural change.
JEL classification: C32; F30; G10
Address for correspondence: Andrea Beltratti, Università Bocconi,
Istituto di Economia Politica, Via Sarfatti, 25, 20100, Milano, Italy.
