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Notwithstanding its impressive contributions to empirical financial economics, there remains a significant gap in the volatility literature, namely its relative neglect of the connection between macroeconomic fundamentals and asset return volatility. The authors progress by analyzing a broad international cross section of stock markets covering approximately forty countries. They find a clear link between macroeconomic fundamentals and stock market volatilities, with volatile fundamentals translating into volatile stock markets. The financial econometrics literature has been strikingly successful at measuring, modeling, and forecasting time-varying return volatility, contributing to improved asset pricing, portfolio management, and risk management.
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