Volatility Forecast About The Stock Market

Financial markets are volatile,and investors usually choose assets to invest based on the macroeconomic environment and market conditions.Exploring the impact of economic policy environment and market sentiment on equity market volatility can help investors optimise their portfolios and prevent and hedge risks better.Most of the existing studies have analysed the spillover effects of single markets,some markets or global markets,mostly ignoring the importance of the dynamic spillover effects of the EPU,an index of economic policy uncertainty,and the VIX,an index of market panic,at different time frequencies,especially the study of the spillover effects of the VIX.This paper considers both the EPU and VIX indices,the most influential indices in the world,and explores their spillover effects on the stock market based on five-minute high-frequency stock market trading data,and compares their differences to fill the gaps in existing research.At the same time,it is extended and applied to the China stock market to further compare its differences on the volatility spillover characteristics of the China and U.S.stock markets,providing more theoretical empirical basis for the study of volatility spillover in the domestic stock market.The innovations and contributions of this paper mainly consist of the following aspects:(1)By calculating the aggregate spillover index through the full sample and rolling window methods,we identify the static and dynamic spillover characteristics among the EPU,the VIX and the volatility of the U.S.stock market and the volatility of the China stock market respectively,and find that the EPU and VIX indices have a significant impact on the U.S.stock market and the China stock market.The trends of the volatility spillover indices are closely related to the changes of the indices themselves,both types of indices are positively correlated with the volatility spillover indices,and there are significant rises and falls in the volatility spillover of the VIX to the stock market,confirming the time-varying nature of volatility contiguity.(2)Comparing the differences in the spillover characteristics of EPU and VIX to different stock markets,the volatility spillover effect of VIX on stock markets is significantly larger than the EPU on stock markets in both the U.S.and China stock markets.(3)The Baruník and Krehlík(2018)time-frequency spillover measure is used to divide the total spillover into three temporal frequencies: short-term,medium-term and long-term,and to compare the differences in spillover between EPU and VIX on different stock markets at different time frequencies,namely to distinguish the volatility forecasting accuracy of the two types of indicators with forecasting functions.It is found that the spillover effect of the VIX on stock markets is greater than that of the EPU at all frequencies,and that the long-term volatility spillover is greater than the medium-term and short-term volatility spillover.This paper investigates the risk spillover of macroeconomic and market indices on stock markets,which not only enriches the existing theoretical system of spillover studies,but also provides a theoretical basis for investors and market regulators in various countries to optimise their investment portfolios and prevent and hedge risks better.