When it comes to explaining stock market volatility, the story is rarely straightforward. In their article Policy News and Stock Market Volatility for the Journal of Financial Economics, Director Kyle Kost and coauthors Scott R. Baker, Nicholas Bloom, and Steven J. Davis revisit Robert Shiller’s 1981 finding that stock market fluctuations cannot be fully explained by realized future dividends. They introduce a newspaper-based Equity Market Volatility tracker that spans from 1985 to the present, constructed to match the VIX over 1985 to 2015.

Their findings provide new data to better understand how policy news and economic developments contribute to shifts in market volatility. They leverage this new data to explain and interpret firm-level stock price volatilities and the correlation structure of firm-level stock returns.