Determinants of Stock Price Volatility in Financial and Real Sectors of the Economy

Abstract The stock market volatility is fitted usually using the ARCH – type models, which are artificially constructed based on historical values of volatility. However, in its nature, the source of volatility is not the volatility and stock return itself, but it initially comes from the external factors such as news in short – run and economic variables in the long – run. To protect market participants and investors from financial risks, it is important to understand the sources of volatility. Moreover, there are also not much research papers comparing financial with industrial sectors’ stock prices volatility. Many previous researchers excluded financial sector from the deep analysis due its different leverage structure and essence. Thus, this paper constructs and compares the models including the economic variables for financial sector and industrial sector separately, having cardinally different internal processes, searches for commons and differences in factors, which influence fundamental long – run volatility.