Non-linear dynamics of macroeconomic indicators and stock market volatility in emerging and developed economies

The dynamic interrelation of macroeconomic variables with stock market volatility has been of concern to economists, investors, and policy makers for several decades. This interrelation is intricate and non-linear in nature when emerging economies are compared with developed economies. The present study examines the dynamic and asymmetric influence of important macroeconomic variables GDP growth, inflation, interest rates, and exchange rates—on stock market volatility depending on economic regimes and market structures. Employing state-of-the-art econometric methods, such as threshold models and regime-switching methodologies, the study seeks to identify heterogeneous financial market responses to macroeconomic shocks. Moreover, the study accounts for the mediating effect of investor sentiment and behavioral biases adding further to market response heterogeneity. The results seek to improve investment choices, guide macroeconomic policy, and contribute to the literature by bridging knowledge gaps in existing empirical research.