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Asymmetric implied market volatility and terrorist attacks

Bevilacqua, Mattia, Morelli, David, Uzan, Paola Sultana Renée (2020) Asymmetric implied market volatility and terrorist attacks. International Review of Financial Analysis, 67 . Article Number 101417. ISSN 1057-5219. (doi:10.1016/j.irfa.2019.101417) (Access to this publication is currently restricted. You may be able to access a copy if URLs are provided) (KAR id:79243)

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Language: English

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https://dx.doi.org/10.1016/j.irfa.2019.101417

Abstract

This paper studies the impact of terrorism on implied volatility in the U.S. financial market via an event study methodology. We decompose the options-based and forward looking VIX index into its negative (VIX−) and positive (VIX+) components, extracted only from put options and call options, respectively. This decomposition of the VIX index allows us to better investigate the asymmetric impact of terrorist attacks on implied volatility from the puts and calls channels separately. Our study finds evidence of a greater impact of terror detected for the puts channel of VIX, namely VIX−. We further show that events that occur within the U.S. appear to impact both VIX and VIX− in a similar way, whereas international terrorist attacks show a greater impact on the puts component, VIX−. The calls component, VIX+, is found to be mainly detached from terrorist attacks.

Item Type: Article
DOI/Identification number: 10.1016/j.irfa.2019.101417
Uncontrolled keywords: Implied volatility, Terrorist attacks, Asymmetric volatility, Event study
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School
Depositing User: David Morelli
Date Deposited: 10 Dec 2019 12:05 UTC
Last Modified: 11 Sep 2020 15:15 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/79243 (The current URI for this page, for reference purposes)
Morelli, David: https://orcid.org/0000-0002-1501-4312
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