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Spillover dynamics effects between risk-neutral equity and Treasury volatilities

Author

Listed:
  • Ana González-Urteaga

    (Universidad Pública de Navarra and Institute for Advanced Research in Business and Economics, INARBE)

  • Belén Nieto

    (Universidad de Alicante)

  • Gonzalo Rubio

    (Universidad CEU Cardenal Herrera)

Abstract

Macro-finance asset pricing models provide a rationale for connectedness dynamics between equity and Treasury risk-neutral volatilities. In this paper, we study the total and directional connectedness, in the sense of spillover effects, between risk-neutral volatilities from the equity and Treasury markets. In addition, we analyze the economic and monetary drivers of connectedness dynamics. Most of the time, but especially during bad economic times, we find significant net spillovers from Treasury to equity risk-neutral volatility. The spillover channel between risk-neutral volatilities arises mainly through the government fixed income market.

Suggested Citation

  • Ana González-Urteaga & Belén Nieto & Gonzalo Rubio, 2022. "Spillover dynamics effects between risk-neutral equity and Treasury volatilities," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(4), pages 663-708, December.
    • Handle: RePEc:spr:series:v:13:y:2022:i:4:d:10.1007_s13209-022-00264-w
    DOI: 10.1007/s13209-022-00264-w
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    More about this item

    Keywords

    Risk-neutral equity volatility; Risk-neutral Treasury volatility; Total connectedness; Directional connectedness; Real and monetary economic drivers;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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