An index of financial connectedness applied to variance risk premia

Risultato della ricerca: Other contribution

Abstract

The purpose is to construct an index of financial connectedness among France, Germany, UK, Switzerland and the Netherlands variance risk premia.The variance risk premium of each country stock market is measured by the difference between the (square) of implied volatility and expectedrealized variance of the stock market for next month. The total and directional indices of financial connectedness are obtained from the forecasterror variance decomposition of a Vector Autoregressive Model, VAR, as recently suggested by Diebold and Yilmaz. While the authors main focusis on connectedness among financial returns, they base their analysis on a short memory stationary VAR. Given the long memory properties of theseries under investigation, we base the computation of the moving average coefficients useful for the computation of variance decomposition bymodeling a fractionally integrated Vector Autoregressive Model
Lingua originaleEnglish
Stato di pubblicazionePublished - 2014

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