Macroeconomy and Stock Return Volatility: Pakistan vs US Market

The objectives of the current study were to examine the impact of macroeconomic factors on the stock returns volatility, pricing of risk, asymmetry and leverage effect, and volatility dynamics on comparative bases of developed (NYSE) and emerging (PSX) markets. Furthermore, all these aspects were also analyzed with regard to various firm's features. The stock return volatility of all the firms from all the sectors of both NYSE and PSX are considered for the period from January 3, 2000, to December 31, 2015. Three time-series models were applied, i.e. GARCH (1, 1) for the relationship between stock returns volatility and macroeconomic factors and volatility dynamics, EGARCH for the asymmetry and leverage effect, and GARCH-in-mean for pricing of risk. All the macroeconomic factors proved their significance in determining the stock returns volatility in both the markets with respect to various firm features.