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Volatility equicorrelation: A cross-market perspective

Chevallier, Julien; Aboura, Sofiane (2014), Volatility equicorrelation: A cross-market perspective, Economics Letters, 122, 2, p. 289–295. 10.1016/j.econlet.2013.12.008

Type
Article accepté pour publication ou publié
Date
2014-02
Journal name
Economics Letters
Volume
122
Number
2
Publisher
Elsevier
Pages
289–295
Publication identifier
Metadata
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Author(s)
Chevallier, Julien

Aboura, Sofiane
Dauphine Recherches en Management [DRM]
Abstract (EN)
This paper contains the first empirical application of the Dynamic Equicorrelation (DECO) model to a cross-market dataset composed of equities, bonds, foreign exchange rates and commodities during 1983-2013. The originality of our approach consists in examining the volatility equicorrelations, by updating the concept of ‘volatility surprise’. We document that the average volatility equicorrelation across markets is around 15%, while being time-varying with regime shifts before/after September 2005 and with a low mean-reversion level.
Subjects / Keywords
DECO; Cross-market; Volatility equicorrelation
JEL
C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
G10 - General
Q40 - General