Implied volatility around the world: Geographical markets and asset classes

Velev, Julian P. ; Payne, Brian C. ; Tresl, Jiri ; Toledo, Wilfredo

Document Type: Article
Year of publication: 2018
The title of a journal, publication series: The Journal of Derivatives
Volume: 25
Issue number: 4
Page range: 7-23
Place of publication: New York, NY
Publishing house: Institutional Investor
ISSN: 1074-1240
Publication language: English
Institution: Business School > ABWL, Finanzwirtschaft u. Finanzmarktinstitutionen (Spalt 2019-)
Subject: 650 Management
Abstract: This study analyzes the implied volatility-return relationship across asset classes, geographical regions, and time, which extends efforts documenting the instantaneous relation between implied volatility changes and index returns. Modeling the relationships as a GARCH process with lagged terms, we confirm that implied volatility depends on the immediate index changes. However, contemporaneous volatility changes are also explained by lagged index returns and past volatility moves. While this short-term volatility behavior is heavily asymmetric on the side of negative moves, in the long-term there is indifference between positive and negative moves. Volatility also appears to transfer from larger, primary markets to smaller, secondary markets, as price moves in larger markets explain a large portion of volatility in smaller markets. Volatility in larger markets also transfers to the commodity and currency markets.

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.

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