Volatility co-movements: A time-scale decomposition analysis

Risultato della ricerca: Article

2 Citazioni (Scopus)

Abstract

In this paper, we are interested in detecting contagion from US to European stock market volatilities in the period immediately after the Lehman Brothers collapse. The analysis is based on a factor decomposition of the covariance matrix, in the time and frequency domain, using wavelets. The analysis aims to disentangle two components of volatility contagion (anticipated and unanticipated by the market). Once we focus on standardized factor loadings, the results show no evidence of contagion (from the US) in market expectations (coming from implied volatility) and evidence of unanticipated contagion (coming from the volatility risk premium) for almost any European country. Finally, the estimation of a three-factor model specification shows that a European common shock plays an important role in determining volatility co-movements mainly in the tranquil period, while in the period of financial turmoil, the US common shock is the main driver of volatility co-movements.
Lingua originaleEnglish
pagine (da-a)34-44
Numero di pagine11
RivistaJournal of Empirical Finance
Volume34
Stato di pubblicazionePublished - 2015

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Time scales
Decomposition analysis
Comovement
Contagion
Common shocks
Factor loadings
Decomposition
Implied volatility
Factors
Covariance matrix
European stock markets
Model specification
European countries
Volatility risk premium
Fama-French three-factor model
Stock market volatility
Wavelets
Frequency domain

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cita questo

Volatility co-movements: A time-scale decomposition analysis. / Lo Cascio, Iolanda; Cipollini, Andrea; Muzzioli, Silvia.

In: Journal of Empirical Finance, Vol. 34, 2015, pag. 34-44.

Risultato della ricerca: Article

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