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The determinants of the model-free positive and negative volatilities
journal contribution
posted on 2023-06-09, 20:29 authored by Mattia Bevilacqua, David Morelli, Radu TunaruRadu TunaruIn this paper we analyze the role of macroeconomic and financial determinants in explaining stock market volatilities in the U.S. market. Both implied and realized volatility are computed model-free and decomposed into positive and negative components, thereby allowing us to compute directional volatility risk premia. We capture the behaviour of each component of implied volatility and risk premium in relation to their different determinants. The negative implied volatility appears to be linked more towards financial conditions variables such as uncertainty and geopolitical risk indexes, whereas positive implied volatility is driven more by macro variables such as inflation and GDP. There is a clear shift in importance from macro towards financial determinants moving from the pre towards the post financial crisis. A mixed frequency Granger causality approach uncovers causality relationships between volatilities and risk premia and macro variables and vice versa, a finding which is not detected with a conventional low frequency VAR model.
History
Publication status
- Published
File Version
- Accepted version
Journal
Journal of International Money and FinanceISSN
0261-5606Publisher
ElsevierExternal DOI
Volume
92Page range
1-24Department affiliated with
- Accounting and Finance Publications
Research groups affiliated with
- Business and Finance Research Group Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2020-02-03First Open Access (FOA) Date
2020-06-08First Compliant Deposit (FCD) Date
2020-01-31Usage metrics
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