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Title: Time connectedness of fear
Authors: Andrada Félix, Julián 
Fernández Pérez,Adrián 
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: 2018
Publisher: Institut de Recerca en Economia Aplicada Regional i Pública
Project: ECO
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 January 3, 2011-May 4, 2018. To this end, we first perform a static analysis to measure the total volatility connectedness in the entire period using a framework proposed by Diebold and Yilmaz (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 (2017). Our results suggest that a 72.27%, of the total variance of the forecast errors is explained by shocks across the examined investor time horizons, 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. Finally, we also document a superior performance of the TVP-VAR approach to connectedness respect to the original one proposed by Diebold and Yilmaz (2014).
Source: Documents de Treball ( IREA ), n. 18, p. 1-0
Appears in Collections:Documento de trabajo
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