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Consumption volatility is a key source of economic growth volatility; thus, it is an important factor in designing macroeconomic policy. The purpose of this paper is to investigate the factors that determine household consumption volatility, using urban household survey (UHS) data over the period 2002–2009 in 18 provinces in China.

Both a traditional variance decomposition method and an advanced variance decomposition method are used.

The traditional variance decomposition method suggests that heterogeneity of consumption goods is the key to analyze consumption volatility in China. Consumption of transportation makes the highest aggregate contribution and per-unit volatility in consumption volatility, whereas consumption of food makes the second highest aggregate contribution and the lowest per-unit volatility. Further investigation with the advanced variance decomposition method, which allows the authors to capture intertemporal dynamics and cross-household differences simultaneously, finds that the main factor determining the consumption volatility in China is intertemporal dynamics, rather than cross-household differences.

Future research could fruitfully explore four issues. First, consumption upgrading has increased the volatility of China’s household consumption. How much will this affect economic growth in China under its “new normal” conditions, and how should the Chinese government respond? Second, differences between UHS data and aggregate data in the calculations of consumption risk sharing need to be investigated. Third, it is important to investigate the channels through which the Chinese government can enhance its ability to spread consumption risks and thus reduce consumer consumption volatility. Finally, further study could extend the current 18 provinces to a nation-wide sample and update the data beyond 2009 to estimate the impact of the global financial crisis.

The results suggest that when policy makers design macroeconomic policies to smooth consumption volatility, they should consider heterogeneity in household consumption goods, regional disparity and intertemporal dynamics simultaneously. Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world.

Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world.

This paper fills this gap by using China’s UHS data to assess consumption volatility from the perspectives of heterogeneity in household consumption goods, cross-household differences and intertemporal dynamics. We make three contributions to the literature. The first contribution of this paper consists of demonstrating the contributions of heterogeneity in household consumption goods to consumption volatility. The second contribution consists of using the advanced variance decomposition method proposed by Crucini and Telmer (2012). This decomposition methodology allows the authors to examine whether household consumption volatility is due to cross-household differences or intertemporal dynamics. The third contribution is that this paper takes Chinese residents’ consumption fluctuations as the starting point to analyze the impact of consumption fluctuations on the future trend of China’s economy.

Since the last review article by McKenzie, the literature has experienced a surge in the number of empirical articles. These new contributions, coupled with those that were overlooked by McKenzie, set the stage for this review. Many of the recent studies have been empirical in nature and these deserve specific attention. Thus, this paper aims to survey and review all of the studies by paying attention to the attributes outlined in the text.

This paper examines the vast empirical literature, up to 2005, to assess the main trends in modeling and estimating these trade flows at the aggregate, bilateral, and sectoral levels.

The increase in exchange‐rate volatility since 1973 has had indeterminate effects on international export and import flows. Although it can be assumed that an increase in risk may lead to a reduction in economic activity, the theoretical literature provides justifications for positive or insignificant effects as well. Similar results have been found in empirical tests. While modeling techniques have evolved over time to incorporate new developments in econometric analysis, no single measure of exchange‐rate volatility has dominated the literature.

An argument put forward by the opponents of the floating exchange rates is that such rates introduce uncertainty into the foreign exchange market, which could deter trade flows. However, a theoretical argument is put forward by some to show that uncertainty could also boost trade flows if traders increase their trade volume to offset any decrease in future revenue due to exchange rate volatility. The empirical literature reviewed in this paper supports both views.

Extending the extant literature and using Qatar’s equity market as a case study, this paper aims to look into the potential impacts of foreign investor groups’ trading activities on market volatility in comparison with those of Qatar’s domestic investor counterparts.

The dataset is comprised of daily aggregated values of stock purchases and sales made separately by four investor groups, namely, foreign individual investors, foreign institutional investors, domestic individual investors, and domestic institutional investors. An ex post measure of volatility introduced by Rogers and Satchell (1991) is employed. Four proxies for investor trading are considered separately in the analysis. The objective of the study is empirically addressed in the context of the Generalized Method of Moments estimation technique.

In general, there exists substantial contemporaneous price impact associated with foreign equity investment in the Qatari capital market, despite the fact that foreigners’ buy and sell trades are not as large as those of their domestic counterparts. More specifically, foreign institutional sales (purchases) tend to increase (reduce) market volatility. Like those of foreign institutions, the sell trades by foreign individuals have a positive impact on volatility. On the other hand, domestic institutional purchases are significantly negatively related with market volatility, whereas the sell trades by the same category have no impact on volatility. Finally, surprises in foreigners’ trading volumes turn out to be responsible for adding to volatility.

Although a sudden reversal of foreign capital flows can pose a real threat to the stability of the Qatari capital market, such capital flows are deemed to be an indispensable vehicle for enhancing the liquidity and efficiency of the market. Accordingly, policy makers in Qatar should overhaul the current foreign investment legislation to make it even more streamlined and better suited to achieving the country’s strategic vision for the market. Foremost in these reforms is relaxing the stringent 25 percent foreign ownership restriction. Such a relaxation process is highly recommended to be phased in only gradually, in order to weigh its pros and cons. In this regard, the authorities concerned should consider embarking on a range of procedures intended to ward off the adverse ramifications of foreign capital outflows.

To the author’s best knowledge, no study about the impact of foreign equity flows on domestic markets has been so far conducted using trading data from the Qatari market. This work presents one such attempt.

The purpose of this paper is to study the implications of borrowing constraints characterizing the informal sector for macroeconomic volatility.

To this end, the author develops a simple dynamic stochastic general equilibrium model wherein registered activity not only is the basis to determine tax liabilities, but also serves as collateral for securing debts. Such a framework allows for computational experiments to analyze the effect of informality on aggregate fluctuations.

The experiments show that the credit-constrained informal sector does exert a significant influence on the cyclical volatility of consumption and investment.

There are not many studies addressing the implications of informal economic activities for macroeconomic fluctuations. This paper contributes to the literature by developing a theoretical model showing that credit constraints characterizing these activities might play a non-negligible role in explaining the cyclical volatility of some important aggregates.

The purpose of the study is to examine the dynamics in the troika of asset pricing, volatility, and the business cycle in the US and Japan.

The study uses a six-factor asset pricing model to derive the realized volatility measure for the GARCH-type models.

The comprehensive empirical investigation led to the following conclusion. First, the results infer that the market portfolio and human capital are the primary discounting factors in asset return predictability during various phases of the subprime crisis phenomenon for the US and Japan. Second, the empirical estimates neither show any significant impact of past conditional volatility on the current conditional volatility nor any significant effect of subprime crisis episodes on the current conditional volatility in the US and Japan. Third, there is no asymmetric volatility effect during the subprime crisis phenomenon in the US and Japan except the asymmetric volatility effect during the post-subprime crisis period in the US and full period in Japan. Fourth, the volatility persistence is relatively higher during the subprime crisis period in the US, whereas during the subprime crisis transition period in Japan than the rest of the phases of the subprime crisis phenomenon.

The study argues that the empirical investigations that employed the autoregressive method to derive the realized volatility measure for the parameter estimation of GARCH-type models may result in incurring spurious estimates. Further, the empirical results of the study show that using the six-factor asset pricing model in an intertemporal framework to derive the realized volatility measure yields better estimation results while estimating the parameters of GARCH-type models.

The accounting literature has traditionally focused on firm-level studies to examine the capital market implications of earnings and other accounting variables. We first develop the arguments for studying capital market implications at the aggregate level as well. A central issue is that diversification makes equity investors at least partially and potentially almost completely immune to several firm-level properties of earnings by holding diversified portfolios. Diversification is particularly important when assessing the welfare consequences of random errors in accounting measurement (imperfect accruals) and, to the extent it is independent across firms, of deliberate manipulation (earnings management). Consequently, some firm-level metrics of association, timeliness, value relevance, conservatism and other earnings properties do not map easily into investor welfare. Similarly, earnings-related risk manifests itself to equity investors largely through systematic earnings risk (covariation with aggregate earnings and/or other macroeconomic indicators). We conclude that the design and evaluation of financial reporting must adopt at least in part an aggregate perspective. We then summarize the literature in accounting, economics and finance on aggregate earnings and stock prices. Our review highlights the importance of studying earnings at the aggregate level.

The purpose of this paper is to investigate the potential link between remittances and economic volatility in small island developing states.

The paper estimates a panel data model using a database containing 20 small island developing states (SIDS) observed over annual intervals between 1986 and 2005.

The results suggest that, in general, remittance flows have a stabilising influence on output and investment volatility. However, given the importance of these flows to SIDS, the volatility of remittances also has a significant and positive impact on both investment and consumption volatility.

The policy implications of the study's findings is that SIDS (similar to how oil‐producing nations take oil price fluctuations into account when considering policy changes) may have to monitor and forecast future remittance flows and take these projections into account when making changes to either their monetary or fiscal policy stance.

Workers' remittances have grown dramatically worldwide, particularly in SIDS, where they constitute one of the main sources of foreign exchange. Given the importance of these flows to economic growth and development in these countries, this study examines the potential link between remittances and economic volatility.

The study aims to analyze the interaction between macroeconomic uncertainty and stock market return and volatility for China and USA and tries to draw some invaluable inferences for the investors, portfolio managers and policy analysts.

Empirically the study uses GARCH family models to capture the time-varying volatility of stock market and macroeconomic risk factors by using monthly data ranging from 1995:M7 to 2018:M6. Then, these volatility series are further used in the multivariate VAR model to analyze the feedback interaction between stock market and macroeconomic risk factors for China and USA. The study also incorporates the impact of Asian financial crisis of 1997–1998 and the global financial crisis of 2007–2008 by using dummy variables in the GARCH model analysis.

The empirical results of GARCH models indicate volatility persistence in the stock markets and the macroeconomic variables of both countries. The study finds relatively weak and inconsistent unidirectional causality for China mainly running from the stock market to the macroeconomic variables; however, the volatility spillover transmission reciprocates when the impact of Asian financial crisis and Global financial crisis is incorporated. For USA, the contemporaneous relationship between stock market and macroeconomic risk factors is quite strong and bidirectional both at first and second moment level.

This study investigates the interaction between stock market and macroeconomic uncertainty for China and USA. The researchers believe that none of the prior studies has made such rigorous comparison of two of the big and diverse economies (China and USA) which are quite contrasting in terms of political, economic and social background. Therefore, this study also tries to test the presumed conception that macroeconomic uncertainty in China may have different impact on the stock market return and volatility than in USA.

The paper seeks to investigate conditional correlations and conditional volatility spillovers across international stock markets and industrial sectors from the perspective of the UK investor.

Utilizing the DCC model, the paper extracts the time‐varying conditional correlations between the UK, US and European stock markets and industrial sectors. It also uses the multivariate generalized autoregressive conditional heteroscedasticity (MVGARCH) to assess the transmission of volatility from the US and European stock markets to the UK.

The findings suggest that the UK equity market is more integrated with Europe, in terms of both aggregate stock markets and sectors. Correlations are higher during bear markets and tend to fall during periods of recovery. The sectoral analysis also provides interesting insights into the dynamics of volatility transmission across sectors.

The results suggest that the search for a better understanding of the dynamics of correlations between markets and sectors must continue.

The investigation raises interesting questions for investors and regulators, as well as theoretical finance. For example, the finding that correlations increase in bear markets suggests that hedging strategies need to be revisited. The existence of sectoral idiosyncratic volatility offers further evidence that arbitrage may at times become more risky and thus limited.

The findings from analysing both market‐wide and sectoral integration raises the overarching question of whether studies of market integration and portfolio diversification, as well as the authorities overseeing financial stability, should be focusing on sectoral rather than market‐wide analysis.

This study is the first to examine the role of idiosyncratic risk in the pricing of European real estate equities. The capital asset pricing model predicts that in equilibrium, investors should hold the market portfolio. As a result, investors should only be rewarded for carrying undiversifiable systematic risk and not for diversifiable idiosyncratic risk. The study is adding to the growing body of countering studies by first examining time trends of idiosyncratic risk and subsequently the pricing of idiosyncratic risk in European real estate equities. The paper aims to discuss these issues.

The study analyses 293 real estate equities from 16 European capital markets over the 1991-2011 period. The framework of Fama and MacBeth is employed. Regressions of the cross-section of expected equity excess returns on idiosyncratic risk and other firm characteristics such as beta, size, book-to-market equity (BE/ME), momentum, liquidity and co-skewness are performed. Due to recent evidence on the conditional pricing of European real estate equities, the pricing is also investigated using the conditional framework of Pettengill et al. Either realised or expected idiosyncratic volatility forecasted using a set of exponential generalized autoregressive conditional heteroskedasticity models are employed.

The initial analysis of time trends in idiosyncratic risk reveals that while the early 1990s are characterised by both high total and idiosyncratic volatility, a strong downward trend emerged in 1992 which was only interrupted by the burst of the dotcom bubble and the 9/11 attacks along with the global financial and economic crisis. The largest part of total volatility is idiosyncratic and therefore firm-specific in nature. Simple cross-correlations indicate that high beta, small size, high BE/ME, low momentum, low liquidity and high co-skewness equities have higher idiosyncratic risk. While size and BE/ME are priced unconditionally from 1991 to 2011, both measures of idiosyncratic risk fail to achieve significance at reasonable levels. However, once conditioned on the general equity market or real estate equity market, a strong positive relationship between idiosyncratic risk and expected returns emerges in up-markets, while the opposite relationship exists in down-markets. The relationship is robust to firm-specific factors and a series of robustness checks.

The results show that ignoring the conditional relationship between idiosyncratic risk and returns might result in the false realisation that idiosyncratic risk does not matter in the pricing of risky (real estate) assets.

This study is the first to examine the role of idiosyncratic risk in the pricing of European real estate equities. The study reveals differences in the pricing of European real estate equities and US REITs. The study highlights that ignoring the conditional relationship between idiosyncratic risk and returns might result in the false realisation that idiosyncratic risk does not matter in the pricing of risky assets.