Kyle J. Kost
Institutional Affiliation: University of Chicago
NBER Working Papers and Publications
|March 2019||Policy News and Stock Market Volatility|
with Scott R. Baker, Nicholas Bloom, Steven J. Davis: w25720
We create a newspaper-based Equity Market Volatility (EMV) tracker that moves with the VIX and with the realized volatility of returns on the S&P 500. Parsing the underlying text, we find that 72 percent of EMV articles discuss the Macroeconomic Outlook, and 44 percent discuss Commodity Markets. Policy news is another major source of volatility: 35 percent of EMV articles refer to Fiscal Policy (mostly Tax Policy), 30 percent discuss Monetary Policy, 25 percent refer to one or more forms of Regulation, and 13 percent mention National Security matters. The contribution of particular policy areas fluctuates greatly over time. Trade Policy news, for example, went from a virtual nonfactor in equity market volatility to a leading source after Donald Trump’s election and especially after the int...