In this paper we investigate short-run co-movements before and after the Lehman Brothers’ collapse among the volatility series of US and a number of European countries. The series under investigation (implied and realized volatility) exhibit long-memory and, in order to avoid missspecification errors related to the parameterization of a long memory multivariate model, we rely on wavelet analysis. More specifically, we retrieve the time series of wavelet coefficients for each volatility series for high frequency scales, using the Maximal Overlapping Discrete Wavelet transform and we apply Maximum Likelihood for a factor decomposition of the short-run covariance matrix. The empirical evidence shows an increased interdependence in the post-break period and points at an increasing (decreasing) role of the common shock underlying the dynamics of the implied (realized) volatility series, once we move from the 2-4 days investment time horizon to the 8-16 days. Moreover, there is evidence of contagion from the US to Europe immediately after the Lehman Brothers’ collapse, only for realized volatilities over an investment time horizon between 8 and 16 days.

LO CASCIO, I., CIPOLLINI, A. (2013). Volatility co-movements: a time scale decomposition analysis [Altro].

Volatility co-movements: a time scale decomposition analysis

LO CASCIO, Iolanda;CIPOLLINI, Andrea
2013-01-01

Abstract

In this paper we investigate short-run co-movements before and after the Lehman Brothers’ collapse among the volatility series of US and a number of European countries. The series under investigation (implied and realized volatility) exhibit long-memory and, in order to avoid missspecification errors related to the parameterization of a long memory multivariate model, we rely on wavelet analysis. More specifically, we retrieve the time series of wavelet coefficients for each volatility series for high frequency scales, using the Maximal Overlapping Discrete Wavelet transform and we apply Maximum Likelihood for a factor decomposition of the short-run covariance matrix. The empirical evidence shows an increased interdependence in the post-break period and points at an increasing (decreasing) role of the common shock underlying the dynamics of the implied (realized) volatility series, once we move from the 2-4 days investment time horizon to the 8-16 days. Moreover, there is evidence of contagion from the US to Europe immediately after the Lehman Brothers’ collapse, only for realized volatilities over an investment time horizon between 8 and 16 days.
2013
WORKING PAPER CEFIN (CENTRO STUDI BANCA E FINANZA) ISSN 2282-8168N
LO CASCIO, I., CIPOLLINI, A. (2013). Volatility co-movements: a time scale decomposition analysis [Altro].
File in questo prodotto:
File Dimensione Formato  
LO cascio cipollini muzzioli 2013.pdf

Solo gestori archvio

Dimensione 783.51 kB
Formato Adobe PDF
783.51 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10447/104797
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact