INTEREST RATES AND STOCK MARKET VOLATILITY

Abstract

The study “Impact of GDP Growth on Stock Market Volatility” explores the relationship between changes in Gross Domestic Product (GDP) growth rates and their influence on investor sentiment and stock market volatility. The research aims to shed light on the dynamics of how fluctuations in economic growth impact market behaviour and risk perceptions.

Through a comprehensive analysis of historical data from various stock markets, the study examines the extent to which GDP growth rates correlate with stock market volatility. Statistical techniques, including regression models and time-series analysis, are utilised to quantify the strength and significance of this relationship.

The findings indicate that changes in GDP growth rates notably impact investor sentiment and stock market volatility. Favourable GDP growth rates tend to boost investor confidence, leading to a reduction in volatility. Conversely, negative or lower-than-expected GDP growth rates trigger higher levels of uncertainty, prompting increased market volatility.

The study also explores potential mechanisms through which GDP growth affects market sentiment and volatility. It identifies key economic sectors and industries that are particularly sensitive to changes in GDP growth, influencing their performance and overall market dynamics.

Understanding the linkage between GDP growth and stock market volatility is crucial for investors and policymakers. The insights gained from this research can assist investors in optimising their portfolios and implementing risk management strategies based on economic growth prospects. Policymakers can use these findings to design timely interventions supporting market stability during economic fluctuations.

The study concludes with recommendations for investors to adopt proactive strategies to effectively navigate the impact of GDP growth on market volatility. Furthermore, it emphasises the significance of monitoring economic indicators and incorporating such knowledge into investment decision-making processes.

Overall, the research provides valuable insights into the complex relationship between GDP growth and stock market volatility, contributing to the existing body of knowledge in finance and economics. The findings have practical implications for market participants, enabling them to adapt to global economic conditions and enhance their understanding of stock market behaviour.

Key Words: Stock market volatility, Global economy, Stock market behaviour, Gross Domestic Product (GDP), Economic fluctuations.