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Volatility equicorrelation: A cross-market perspective

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  • Chevallier, Julien
  • Aboura, Sofiane

Abstract

This paper contains the first empirical application of the Dynamic Equicorrelation (DECO) model to a cross-market dataset composed of equities, bonds, foreign exchange rates and commodities during 1983-2013. The originality of our approach consists in examining the volatility equicorrelations, by updating the concept of ‘volatility surprise’. We document that the average volatility equicorrelation across markets is around 15%, while being time-varying with regime shifts before/after September 2005 and with a low mean-reversion level.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/12323.

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Date of creation: Feb 2014
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Publication status: Published in Economics Letters, 2014, Vol. 122, no. 2
Handle: RePEc:dau:papers:123456789/12323

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Keywords: DECO; Cross-market; Volatility equicorrelation;

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  1. Hood, Matthew & Malik, Farooq, 2013. "Is gold the best hedge and a safe haven under changing stock market volatility?," Review of Financial Economics, Elsevier, Elsevier, vol. 22(2), pages 47-52.
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  16. Liu, Peng & Tang, Ke, 2011. "The stochastic behavior of commodity prices with heteroskedasticity in the convenience yield," Journal of Empirical Finance, Elsevier, Elsevier, vol. 18(2), pages 211-224, March.
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