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Title: Time connectedness of fear
Authors: Andrada Félix, Julián 
Fernandez-Perez, A
Fernández Rodríguez, Fernando 
Sosvilla Rivero,Simón Javier 
UNESCO Clasification: 531206 Finanzas y seguros
530904 Estructura del mercado
Keywords: Implied volatility indices
Financial market linkages
Vector autoregression
Variance decomposition
Issue Date: 2022
Project: PID2019-105986 GB-C21
Journal: Empirical Economics 
Abstract: This paper examines the interconnection between four implied volatility indices representative of the investors' consensus view of expected stock market volatility at different maturities during the period from 3 January 2011 to 4 May 2018. To this end, we first perform static analysis to measure the total volatility connectedness in the entire period using a framework proposed by Diebold and Yilmaz (J Econ 182: 119–134, 2014). Second, we apply a dynamic analysis to evaluate both the net directional connectedness for each market using the TVP-VAR connectedness approach developed by Antonakakis and Gabauer (Refined measures of dynamic connectedness based on TVP-VAR. MPRA, Working Paper No. 78282, 2017). Our results suggest that 72.27% of the total variance of the forecast errors is explained by shocks across the examined maturities, indicating that the remainder 27.73% of the variation is due to idiosyncratic shocks. Furthermore, we find that volatility connectedness varies over time, with a surge during periods of increasing economic and financial instability. Our results are robust to control by macroeconomic and uncertainty factors, and persistent across US and European implied volatility indices.
ISSN: 0377-7332
DOI: 10.1007/s00181-021-02056-w
Source: Empirical Economics [ISSN 0377-7332], n. 62, p. 905–931
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