Advanced Search
MyIDEAS: Login to save this paper or follow this series

Are Volatility Expectations Characterized By Regime Shifts? Evidence From Implied Volatility Indices

Contents:

Author Info

  • Kazuhiko Nishina

    (Graduate School of Economics, Osaka University, Japan)

  • Nabil Maghrebi

    ()
    (Graduate School of Economics, Wakayama University, Japan)

  • Mark J. Holmes

    (Waikato University, New Zealand)

Abstract

This paper examines nonlinearities in the dynamics of volatility expectations using benchmarks of implied volatility for the US and Japanese markets. The evidence from Markov regime-switching models suggests that volatility expectations are likely to be governed by regimes featuring a long memory process and significant leverage effects. Market volatility is expected to increase in bear periods and decrease in bull periods. Leverage effects constitute thus an important source of nonlinearities in volatility expectations. There is no evidence of long swings associated with financial crises, which do not have the potential of shifting volatility expectations from one regime to another for long protracted periods.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0620.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 06-20.

as in new window
Length: 31 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:osk:wpaper:0620

Contact details of provider:
Email:
Web page: http://www.econ.osaka-u.ac.jp/
More information through EDIRC

Related research

Keywords: Markov Regime Switching; Implied Volatility Index; Nonlinear Modelling.;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Canina, Linda & Figlewski, Stephen, 1993. "The Informational Content of Implied Volatility," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(3), pages 659-81.
  3. Dahlquist, Magnus & Gray, Stephen F., 2000. "Regime-switching and interest rates in the European monetary system," Journal of International Economics, Elsevier, Elsevier, vol. 50(2), pages 399-419, April.
  4. Yacine Ait-Sahalia & Andrew W. Lo, 1995. "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," NBER Working Papers 5351, National Bureau of Economic Research, Inc.
  5. 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, Elsevier, vol. 105(1), pages 5-26, November.
  6. Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility," Journal of Financial Economics, Elsevier, Elsevier, vol. 50(2), pages 125-150, November.
  7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. J. Cuñado & L. Gil-Alana & F. Gracia, 2009. "US stock market volatility persistence: evidence before and after the burst of the IT bubble," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 33(3), pages 233-252, October.
  2. Gil-Alana, Luis A. & Shittu, Olanrewaju I. & Yaya, OlaOluwa S., 2014. "On the persistence and volatility in European, American and Asian stocks bull and bear markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 40(C), pages 149-162.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:osk:wpaper:0620. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Atsuko SUZUKI).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.