Volatility Swings in the US Financial Markets
Empirical evidence shows that the dynamics of high frequency–based measures of volatility exhibit persistence and occasional abrupt changes in the average level. By looking at volatility measures for major indices, we notice similar patterns (including jumps at about the same time), with stronger similarities, the higher the degree of company capitalization represented in the indices. We adopt the recent Markov Switching Asymmetric Multiplicative Error Model to model the dynamics of the conditional expectation of realized volatility. This allows us to address the issues of a slow moving average level of volatility and of different dynamics across regimes. An extension sees a more flexible model combining the characteristics of Markov Switching and smooth transition dynamics.
|Date of creation:||Jul 2012|
|Date of revision:||Jul 2012|
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- Robert F. Engle & Giampiero M. Gallo, 2003.
"A Multiple Indicators Model for Volatility Using Intra-Daily Data,"
NBER Working Papers
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- Robert F. Engle & Giampiero M. Gallo, 2003. "A Multiple Indicators Model For Volatility Using Intra-Daily Data," Econometrics Working Papers Archive wp2003_07, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
- Zacharias Psaradakis & Nicola Spagnolo, 2003.
"On The Determination Of The Number Of Regimes In Markov-Switching Autoregressive Models,"
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Wiley Blackwell, vol. 24(2), pages 237-252, 03.
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- Giampiero Gallo & Edoardo Otranto, 2007.
"Volatility Spillovers, Interdependence and Comovements: A Markov Switching Approach,"
Econometrics Working Papers Archive
wp2007_11, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
- Gallo, Giampiero M. & Otranto, Edoardo, 2008. "Volatility spillovers, interdependence and comovements: A Markov Switching approach," Computational Statistics & Data Analysis, Elsevier, vol. 52(6), pages 3011-3026, February.
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- Robert F. Engle & Giampiero M. Gallo & Margherita Velucchi, 2012. "Volatility Spillovers in East Asian Financial Markets: A Mem-Based Approach," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 222-223, February.
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