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Volatility, Diversification and Contagion

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Abstract

In this paper I describe in detail the concepts of volatility, diversification and contagion, three basic keys to understand the seemingly whimsical behaviour of financial markets. The presentation is deliberately non-technical and largely self-contained, with most required concepts defined along the way. Nevertheless, the analysis is mostly empirically oriented, with an emphasis on the methods that have been proposed to measure those concepts and a discussion of the stylised facts that the resulting measures imply. I also use those measures to study the effects of the financial crisis of 2007-2008 and the euro sovereign debt crisis of 2010-2012 on Spain.

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  • Enrique Sentana, 2018. "Volatility, Diversification and Contagion," Working Papers wp2018_1803, CEMFI.
    • Handle: RePEc:cmf:wpaper:wp2018_1803
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    More about this item

    Keywords

    Correlation; dependence; stock markets; volatility derivatives.;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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