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Dynamic relations of uncertainty expectations: a conditional assessment of implied volatility indices

Author

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  • Costas Siriopoulos

    ()

  • Athanasios Fassas

    ()

Abstract

This study examines the spillover effects in international financial markets with respect to implied volatility indices. The use of the latter as the basis of integration analysis means that we test market participants’ expectations and not the actual price fluctuations. The empirical analysis, which includes all publicly available implied volatility indices, employs the dynamic conditional correlation model of Engle ( 2002 ) and its findings suggest that there is significant integration of investors’ expectations about future uncertainty. Furthermore, by accounting for the dynamic volatility of implied volatility inter-dependencies, we are able to reveal possible shifts in conditional correlations of market expectations over time. More specifically, our findings show a slight increase in the conditional correlations for all the volatility indices under review over the years and prove that in periods of turbulence in the financial markets the conditional correlations across implied volatility indices increase. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Costas Siriopoulos & Athanasios Fassas, 2013. "Dynamic relations of uncertainty expectations: a conditional assessment of implied volatility indices," Review of Derivatives Research, Springer, vol. 16(3), pages 233-266, October.
  • Handle: RePEc:kap:revdev:v:16:y:2013:i:3:p:233-266
    DOI: 10.1007/s11147-012-9085-x
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    References listed on IDEAS

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    Cited by:

    1. Thakolsri, Supachok & Sethapramote, Yuthana & Jiranyakul, Komain, 2015. "Implied volatility transmissions between Thai and selected advanced stock markets," MPRA Paper 65901, University Library of Munich, Germany.
    2. Amélie Charles & Olivier Darné & Laurent Ferrara, 2014. "Does the Great Recession imply the end of the Great Moderation? International evidence," EconomiX Working Papers 2014-21, University of Paris Nanterre, EconomiX.
    3. repec:eee:ecofin:v:42:y:2017:i:c:p:107-131 is not listed on IDEAS
    4. repec:eee:finsta:v:30:y:2017:i:c:p:156-174 is not listed on IDEAS

    More about this item

    Keywords

    Implied volatility indices; VIX; Transmission of uncertainty; Dynamic conditional correlation; G13; G14; G15; C53;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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