Negative volatility spillovers in the unrestricted ECCC-GARCH model

Copyright @ 2010 Cambridge University Press.This paper considers a formulation of the extended constant or time-varying conditional correlation GARCH model that allows for volatility feedback of either the positive or negative sign. In the previous literature, negative volatility spillovers were ruled out by the assumption that all the parameters of the model are nonnegative, which is a sufficient condition for ensuring the positive definiteness of the conditional covariance matrix. In order to allow for negative feedback, we show that the positive definiteness of the conditional covariance matrix can be guaranteed even if some of the parameters are negative. Thus, we extend the results of Nelson and Cao (1992) and Tsai and Chan (2008) to a multivariate setting. For the bivariate case of order one, we look into the consequences of adopting these less severe restrictions and find that the flexibility of the process is substantially increased. Our results are helpful for the model-builder, who can consider the unrestricted formulation as a tool for testing various economic theories

Derivatives Trading and the Volume-Volatility Link in the Indian Stock Market

This paper investigates the issue of temporal ordering of the range-based volatility and volume in the Indian stock market for the period 1995-2007. We examine the dynamics of the two variables and their respective uncertainties using a bivariate dual long-memory model. We distinguish between volume traded before and after the introduction of futures and options trading. We find that in all three periods the impact of both the number of trades and the value of shares traded on volatility is negative. This result is in line with the theoretical argument that a marketplace with a larger population of liquidity providers will be less volatile than one with a smaller population. We also find that (i) the introduction of futures trading leads to a decrease in spot volatility, (ii) volume decreases after the introduction of option contracts and, (iii) there are signifcant expiration day effects on both the value of shares traded and volatility series.derivatives trading; emerging markets; long-memory; range-based volatility; value of shares traded

Modelling stock volatilities during financial crises: A time varying coefficient approach

We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two decades in the volatility dynamics, including the underlying volatility persistence and volatility spillover structure. Using daily data from several key stock market indices, the results of our bivariate GARCH models show the existence of time varying correlations as well as time varying shock and volatility spillovers between the returns of FTSE and DAX, and those of NIKKEI and Hang Seng, which became more prominent during the recent financial crisis. Our theoretical considerations on the time varying modelwhich provides the platformupon which we integrate our multifaceted empirical approaches are also of independent interest. In particular, we provide the general solution for time varying asymmetric GARCH specifications, which is a long standing research topic. This enables us to characterize these models by deriving, first, their multistep ahead predictors, second, the first two time varying unconditional moments, and third, their covariance structure.Open Access funded by European Research Council under a Creative Commons license

Athree-dimensionalasymmetric powerHEAVYmodel

This article proposes the three‐dimensional HEAVY system of daily, intra‐daily, and range‐based volatility equations. We augment the bivariate model with a third volatility metric, the Garman–Klass estimator, and enrich the trivariate system with power transformations and asymmetries. Most importantly, we derive the theoretical properties of the multivariate asymmetric power model and explore its finite‐sample performance through a simulation experiment on the size and power properties of the diagnostic tests employed. Our empirical application shows that all three power transformed conditional variances are found to be significantly affected by the powers of squared returns, realized measure, and range‐based volatility as well. We demonstrate that the augmentation of the HEAVY framework with the range‐based volatility estimator, leverage and power effects improves remarkably its forecasting accuracy. Finally, our results reveal interesting insights for investments, market risk measurement, and policymaking

The Legacy of a Fractured Eurozone: The Greek Dra(ch)ma

This paper addresses neoliberal origins of the acute geoeconomic and social crisis that was inflicted on Greece since 2010 with the unleashing of the 3 consecutive bailout plans and the implementation of fierce austerity policies. We further scrutinize the composition of the soaring Greek debt and most importantly, the unsettling utilization of the troika loans for the 2010–15 period. For the first time in the literature, we provide evidence that the vast bulk of the loans went overwhelmingly not to benefiting a “profligate” Greek state but to avoiding the write-downs of bad loans made by reckless creditors (mainly, German and French banks) to the Greek government and private banks. We propose the temporary adoption of a parallel currency in the form of government IOUs, together with other drastic measures to reboot the ailing Greek economy inside the Eurozone

On the Economic fundamentals behind the Dynamic Equicorrelations among Asset classes: Global evidence from Equities, Real estate, and Commodities

We reveal the macroeconomic determinants of the dynamic correlations between three global asset markets: equities, real estate, and commodities. Conditional equicorrelations, computed by the GJR-GARCH-DECO model, are explained by the macro-financial proxies of economic policy and financial uncertainty, credit conditions, economic activity, business and consumer confidence, and geopolitical risk. Our results suggest that elevated cross-asset correlations are associated with higher uncertainty, tighter credit conditions, and lower geopolitical risk, while lower correlations are related to stronger economic activity, business, and consumer confidence. We further focus on economic policy uncertainty (EPU) as a potent catalyst of the asset markets integration process and conclude that EPU magnifies all macro-effects across all correlations. Lastly, we investigate the global financial crisis effect on the time-varying impact of the correlations’ macro-drivers. The crisis structural break amplifies the influence that all determinants exert on the evolution of correlations apart from the geopolitical risk upshot, which is alleviated after the crisis advent

On the macro-drivers of realized volatility: the destabilizing impact of UK policy uncertainty across Europe

This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 28 Feb 2020, available online: https://www.tandfonline.com/doi/full/10.1080/1351847X.2020.173243