<p>This paper on <a href="https://people.stanford.edu/nbloom/sites/default/files/jep_uncertainty.pdf" rel="nofollow noreferrer">Fluctuations in Uncertainty</a> may be helpful and relevant. </p>

<blockquote>
  <p>The  volatility  of  the  stock  market  or  GDP  is  often  used  as  a  measure  of  uncertainty  because  when  a  data  series  becomes  more  volatile  it is  harder  to  forecast.</p>
</blockquote>

<p>Computing the variance or standard deviation of the growth rate of a variable is quite a common procedure to get volatility figures.</p>

<p><a href="https://i.sstatic.net/wpwxc.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/wpwxc.png" alt="enter image description here"></a></p>

<p>The above figure shows the <strong>VIX index</strong> of 30-day implied volatility on the Standard &amp; Poor's 500 stock market index. The  VIX  index  is  traded  on  the  Chicago Board Options Exchange. It is constructed based on the values of a range of  call  and  put  options  on  the  Standard  &amp;  Poor's  500  index  and  represents  the  <strong><em>market's  expectation  of  volatility  over  the  next  30  day</em></strong>.</p>

<p><strong>Other  common  measures</strong>  of  uncertainty  include  forecaster disagreement, mentions of "uncertainty" in news,  and the dispersion of productivity shocks  to  firms. Check Bloom's web page and his <a href="http://www.policyuncertainty.com/" rel="nofollow noreferrer">Economic Policy Uncertainty Index</a></p>

CC BY-SA 3.0
2018-03-29T08:26:03.733Z
Thank you for your answer. But my question is a little bit more technical. How can I calculate the market risk or systematic risk (in percent) based on such an index?
PAS
CC BY-SA 3.0
2018-03-29T08:31:03.410Z
I don't know exactly how the VIX index is constructed but the way you wanted to construct market risk based on standard deviation of growth rates is ok.
emeryville
CC BY-SA 4.0
2023-07-09T00:02:13.910Z
Just a side remark, the VIX index itself is not tradable.
AKdemy
CC BY-SA 3.0
2018-03-27T20:26:35.587Z
2018-03-28T07:09:30.697Z
2018-03-28T07:09:30.697Z
emeryville
<p>How can I calculate market risk for the US Stock Market (NYSE or NASDAQ) using only freely accessible data? I'm only interested in the market risk of the whole economy not of different industries, companies or sub-sectors. </p>

<p>Somebody suggested to me to download market index data and construct the volatility as a measure of market risk. But I can't find a proper explanation how I do this.</p>

<p>Thank you.    </p>

<p>p.s. Is the following procedure correct?:</p>

<p>I get data US Stock market (for example <a href="https://fred.stlouisfed.org/series/SP500" rel="nofollow noreferrer">https://fred.stlouisfed.org/series/SP500</a>) calculate the growth rate and in the last step I compute the variance of the growth rate to get the market risk?</p>

CC BY-SA 3.0
2018-03-26T12:54:15.773Z
There is not one canonical definition of market risk and many to chose from. You seem to have no argument to prefer one in particular. In this situation, I would just choose the definition of market risk that is  easiest to compute with the data you have. Let's consider the risk that the market does *not* open tomorrow. That's certainly a risk. This can be computed using exchange calenders (available online for free) past data (of the sort you found) and a simple [probability model](https://en.wikipedia.org/wiki/Sunrise_problem)
user189035
CC BY-SA 3.0
2018-03-26T14:17:53.407Z
Thank you for your comment. But I was thinking more about the method used by Campbell et al. 2001 (https://onlinelibrary.wiley.com/doi/full/10.1111/0022-1082.00318)
PAS
CC BY-SA 3.0
2018-03-26T15:00:23.027Z
Even then they detail more than one measure of market risk. You'd have to be more specific.
user189035
CC BY-SA 3.0
2018-03-26T17:43:36.820Z
They define market risk as the the variance of the average return of the stock at date $t$ and the average return over the whole sample from 1962-1997. Its formula 17  the values are depicted at page 11.
PAS
<finance><risk>
How to estimate market risk using only publicly available data?
PAS
# How to estimate market risk using only publicly available data?

(Asked by: username_0 on 2018-03-26)

How can I calculate market risk for the US Stock Market (NYSE or NASDAQ) using only freely accessible data? I'm only interested in the market risk of the whole economy not of different industries, companies or sub-sectors.

Somebody suggested to me to download market index data and construct the volatility as a measure of market risk. But I can't find a proper explanation how I do this.

Thank you.

p.s. Is the following procedure correct?:

I get data US Stock market (for example <https://fred.stlouisfed.org/series/SP500>) calculate the growth rate and in the last step I compute the variance of the growth rate to get the market risk?

**Tags:** finance, risk

> **Comments:**
> **username_1**: There is not one canonical definition of market risk and many to chose from. You seem to have no argument to prefer one in particular. In this situation, I would just choose the definition of market risk that is  easiest to compute with the data you have. Let's consider the risk that the market does *not* open tomorrow. That's certainly a risk. This can be computed using exchange calenders (available online for free) past data (of the sort you found) and a simple [probability model](https://en.wikipedia.org/wiki/Sunrise_problem)  
> **username_0**: Thank you for your comment. But I was thinking more about the method used by Campbell et al. 2001 (https://onlinelibrary.wiley.com/doi/full/10.1111/0022-1082.00318)  
> **username_1**: Even then they detail more than one measure of market risk. You'd have to be more specific.  
> **username_0**: They define market risk as the the variance of the average return of the stock at date $t$ and the average return over the whole sample from 1962-1997. Its formula 17  the values are depicted at page 11.  

---

## 1 answers

### Answer by username_2 on 2018-03-27. Score: 3

This paper on [Fluctuations in Uncertainty](https://people.stanford.edu/nbloom/sites/default/files/jep_uncertainty.pdf) may be helpful and relevant.

> The volatility of the stock market or GDP is often used as a measure of uncertainty because when a data series becomes more volatile it is harder to forecast.

Computing the variance or standard deviation of the growth rate of a variable is quite a common procedure to get volatility figures.

[![enter image description here](https://i.sstatic.net/wpwxc.png)](https://i.sstatic.net/wpwxc.png)

The above figure shows the **VIX index** of 30-day implied volatility on the Standard & Poor's 500 stock market index. The VIX index is traded on the Chicago Board Options Exchange. It is constructed based on the values of a range of call and put options on the Standard & Poor's 500 index and represents the ***market's expectation of volatility over the next 30 day***.

**Other common measures** of uncertainty include forecaster disagreement, mentions of "uncertainty" in news, and the dispersion of productivity shocks to firms. Check Bloom's web page and his [Economic Policy Uncertainty Index](http://www.policyuncertainty.com/)

> **Comments:**
> **username_0**: Thank you for your answer. But my question is a little bit more technical. How can I calculate the market risk or systematic risk (in percent) based on such an index?  
> **username_2**: I don't know exactly how the VIX index is constructed but the way you wanted to construct market risk based on standard deviation of growth rates is ok.  
> **username_3**: Just a side remark, the VIX index itself is not tradable.  

---

