Understanding Uncertainties

Abstract

This thesis investigates the relationship between macroeconomic uncertainty and stock market volatility. The study focuses particularly on how uncertainty about the macroeconomic factor expected future GDP growth influences variation in stock prices. Our results indicate that increased macroeconomic uncertainty generate volatility in the stock market for an extended period of time. Furthermore, an analysis of the volume of trade on the S&P 500 index shows that the market responds to increased stock market volatility.