Ideas with Impact
UNB Faculty of Management

During the COVID-19 market crash in early 2020, stock markets became highly unpredictable, and traditional models struggled to keep up.

A new study by Dr. Azam Shamsi Zamenjani, a finance professor at the University of New Brunswick, offers a fresh approach to understanding and predicting market volatility, especially during turbulent times.

Co-authored with Dr. John M. Maheu from McMaster University’s DeGroote School of Business, the study is titled “The Role of Macro-Finance Factors in Predicting Stock Market Volatility: A Latent Threshold Dynamic Model” and is published in the June 2025 issue of the Journal of Empirical Finance.

The researchers developed a flexible model that uses economic and financial indicators to forecast market volatility. What makes it unique is a technique called latent thresholding, which automatically filters out irrelevant data. This keeps the model simple and focused, avoiding the common problem of overfitting.

“Our model lets the data decide which indicators matter most at any given time,” explains Dr. Shamsi Zamenjani. “It adapts as conditions change, which is especially useful during financial crises.”

The study found that this adaptive model outperforms traditional methods, especially when markets are unstable. It helps investors make better decisions about risk, asset allocation, and portfolio adjustments.

For example, during the COVID-19 crash, the model would have quickly identified key warning signs like rising downside risk, leverage, and credit spreads, helping investors respond faster and more effectively.

The model also proved valuable for both the S&P 500 and Nasdaq 100, adjusting its predictions as market conditions evolved. Investors using this approach would have received more accurate forecasts and could have improved their portfolio performance.

In fact, the study estimates that investors would be willing to pay up to 1.82% more in annual fees to use this model over simpler alternatives.

Dr. Shamsi Zamenjani also brings this cutting-edge research into her classrooms at UNB’s faculty of management. In her Financial Data Analysis and Investments courses, students learn how to model volatility and apply these insights to real-world portfolio management.

This gives them a competitive edge in navigating complex markets like those seen during the COVID-19 crisis.

Photo: New research by UNB finance professor, Dr. Azam Shamsi Zamenjani, offers smarter tools for navigating market volatility.

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Media contact:
Lizabeth.Lemonmitchell@unb.ca