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The Determinants of the Model-Free Positive and Negative Volatilities

Bevilacqua, Mattia, Morelli, David, Tunaru, Radu (2019) The Determinants of the Model-Free Positive and Negative Volatilities. Journal of International Money and Finance, 92 . pp. 1-24. ISSN 0261-5606. E-ISSN 1873-0639. (doi:10.1016/j.jimonfin.2018.12.003) (KAR id:70980)

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Official URL:
https://dx.doi.org/10.1016/j.jimonfin.2018.12.003

Abstract

In 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

Item Type: Article
DOI/Identification number: 10.1016/j.jimonfin.2018.12.003
Uncontrolled keywords: Implied Volatility, Risk Premia, Macro Variables, Financial Variables, Granger Causality, Mixed Frequency
Subjects: H Social Sciences
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: David Morelli
Date Deposited: 12 Dec 2018 16:47 UTC
Last Modified: 07 Oct 2021 13:26 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/70980 (The current URI for this page, for reference purposes)
Morelli, David: https://orcid.org/0000-0002-1501-4312
Tunaru, Radu: https://orcid.org/0000-0002-5623-9876
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