Relationship between stock market and macroeconomic volatility

The link between the macroeconomics and the stock market is quite difficult to determine. Different authors and various findings give bias results. A common theoretical framework connecting stock prices to fundamentals is the dividend discount model. This model set that new macroeconomic information will affect stock prices if it impacts on either expectations about future dividends, discount rates, or both. Macroeconomic variables despite different interpretation help to forecast stock market volatility and it is important for investors. The main variables selected for analysis in this article are inflation and interest rates. The impact of inflation is expressed by CPI and PPI. Interest rates are analyzed as the main tool of central bank for inflation's regulation. The main idea of this article is to determine how macroeconomic variables affect stock market volatility. Because of the lack of statistics data of Lithuanian markets in this article are analysed the situation of US.