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The Asian financial crisis : the start of a regime switch in volatility

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Author Info
GIOT, Pierre

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Abstract

Using a Markov switching model applied to the VIX and VDAX implied volatility indexes, we find that the volatility of the U.S. S&P100 index and German DAX index switched from a low-value state to a high-value state around the events of the Asian financial crisis. Moreover, the U.S. and German markets have stayed in the highvolatility state for the next five years. We also show that there has been a structural change in the stock index volatility vs returns relationship.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003078.

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Date of creation: 01 Nov 2003
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Handle: RePEc:cor:louvco:2003078

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Related research
Keywords: implied volatility; Þnancial crisis; Markov switching model; stock market;

References listed on IDEAS
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  1. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September. [Downloadable!] (restricted)
  2. Blair, Bevan J. & Poon, Ser-Huang & Taylor, Stephen J., 2001. "Forecasting S&P 100 volatility: the incremental information content of implied volatilities and high-frequency index returns," Journal of Econometrics, Elsevier, vol. 105(1), pages 5-26, November. [Downloadable!] (restricted)
  3. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
  4. Brooks, Chris & Persand, Gita, 2001. "The trading profitability of forecasts of the gilt-equity yield ratio," International Journal of Forecasting, Elsevier, vol. 17(1), pages 11-29. [Downloadable!] (restricted)
  5. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August. [Downloadable!] (restricted)
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  1. Marcelo Fernandes & Marcelo Cunha Medeiros & MArcelo Scharth, 2007. "Modeling and predicting the CBOE market volatility index," Textos para discussão 548, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  2. BAUWENS, Luc & RIME, Dagfinn & SUCARRAT, Genaro, 2005. "Exchange rate volatility and the mixture of distribution hypothesis," CORE Discussion Papers 2005058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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