The purpose is to construct an index of financial connectedness among France, Germany, UK, Switzerland and the Netherlands variance risk premia. The variance risk premium of each country stock market is measured by the difference between the (square) of implied volatility and expected realized variance of the stock market for next month. The total and directional indices of financial connectedness are obtained from the forecast error variance decomposition of a Vector Autoregressive Model, VAR, as recently suggested by Diebold and Yilmaz. While the authors main focus is on connectedness among financial returns, they base their analysis on a short memory stationary VAR. Given the long memory properties of the series under investigation, we base the computation of the moving average coefficients useful for the computation of variance decomposition by modeling a fractionally integrated Vector Autoregressive Model

LO CASCIO, I., CIPOLLINI, A. (2014). An index of financial connectedness applied to variance risk premia [Altro].

An index of financial connectedness applied to variance risk premia

LO CASCIO, Iolanda;CIPOLLINI, Andrea
2014-01-01

Abstract

The purpose is to construct an index of financial connectedness among France, Germany, UK, Switzerland and the Netherlands variance risk premia. The variance risk premium of each country stock market is measured by the difference between the (square) of implied volatility and expected realized variance of the stock market for next month. The total and directional indices of financial connectedness are obtained from the forecast error variance decomposition of a Vector Autoregressive Model, VAR, as recently suggested by Diebold and Yilmaz. While the authors main focus is on connectedness among financial returns, they base their analysis on a short memory stationary VAR. Given the long memory properties of the series under investigation, we base the computation of the moving average coefficients useful for the computation of variance decomposition by modeling a fractionally integrated Vector Autoregressive Model
ARTICOLO PRESENTATO alla 8th International Conference on Computational and Financial Econometrics (CFE 2014) http://www.cfenetwork.org/CFE2014
LO CASCIO, I., CIPOLLINI, A. (2014). An index of financial connectedness applied to variance risk premia [Altro].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10447/104400
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