tailieunhanh - Stock Market Volatility and the Great Moderation

The basic data for this paper come from the merger of several databases. The most important is the Hall-Liebman (1998) database of CEO stock option holdings, which contains precise information on compensation, including characteristics of stock options for each CEO as well as stock holdings, salary and bonus. Salary and bonus are obtained from proxy statements. The procedure by which stock option values are computed is described in detail below and in the Appendix. The Hall-Liebman data covers 478 firms that were randomly selected from the largest 792 firms in 1984 to avoid selection bias. The holdings of the CEOs of these firms. | Finance and Economics Discussion Series Divisions of Research Statistics and Monetary Affairs Federal Reserve Board Washington . Stock Market Volatility and the Great Moderation Sean D. Campbell 2005-47 NOTE Staff working papers in the Finance and Economics Discussion Series FEDS are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series other than acknowledgement should be cleared with the author s to protect the tentative character of these papers. Stock Market Volatility and the Great Moderation Sean D. Campbell Board of Governors of the Federal Reserve System August 2005 Abstract Using data on corporate profits forecasts from the Survey of Professional Forecasters I decompose real stock returns into a fundamental news component and a return news component and analyze the effects of the Great Moderation on each. Empirically the response of each component of real stock returns to the Great Moderation has been quite different. The volatility of fundamental news shocks has declined by 50 since the onset of the Great Moderation suggesting a strong link between underlying fundamentals and the broader macroeconomy. Alternatively the volatility of return news shocks has remained stable over the Great Moderation period. Since the bulk of stock market volatility is attributable to return shocks the Great Moderation has not had a significant effect on stock return volatility. These empirical findings are shown to be consistent with Campbell and Cochrane s 1999 habit formation asset pricing model. In the face of a large decline in consumption volatility the volatility of fundamental news shocks declines while the volatility of return shocks stagnate. Ultimately the effect of a Great Moderation in consumption .