Proceedings of the Global Conference on Management and Economic
Year: 2024
DOI:
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Domestic Financial Sectors and Volatility of Stock Price Index: New Evidence from the United States
Shahsuzan Zakaria, Ahmad Faiz Abdul Halim, Mohd Taufik Mohd Suffian, Dheya Hamood Saif Al-Fakih
ABSTRACT:
This study investigates the relationship between domestic financial sectors and the volatility of the stock price index in the United States, utilizing data from FRED Economic Data St. Louis Fed. The analysis covers annual data spanning 37 years (1984 – 2020), providing a comprehensive observation period for examining long-term trends and dynamics. Employing Vector Autoregression (VAR) econometric techniques, the study examines the dynamic interactions between key indicators of domestic financial sector performance and fluctuations in the stock price index. The VAR analysis reveals distinct behaviors in DLDFS and SMV, with DLDFS showing mean-reverting tendencies and SMV exhibiting persistence. Low R-squared values point to significant external factors and potential omitted variable bias, while Granger causality tests show SMV influences DLDFS but not vice versa. Specifically, the study highlights the role of domestic financial sectors, including banking, insurance, and capital markets, in shaping the stability and volatility of the stock price index. By uncovering the nuanced relationships between these sectors and stock price dynamics, the study contributes to a deeper understanding of the mechanisms driving market volatility in the United States. The implications of these findings extend to policymakers, investors, and market participants seeking to navigate the complexities of the U.S. financial system and manage risks associated with stock price volatility.
keywords: domestic financial sectors; financial system; stock price index; volatility; VAR econometric estimates