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The cross-market index for volatility surprise

Aboura, Sofiane; Chevallier, Julien (2014), The cross-market index for volatility surprise, Journal of Asset Management, 15, 1, p. 7-23. 10.1057/jam.2014.5

Type
Article accepté pour publication ou publié
Date
2014-02
Journal name
Journal of Asset Management
Volume
15
Number
1
Publisher
Palgrave Macmillan
Pages
7-23
Publication identifier
Metadata
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Author(s)
Aboura, Sofiane
Dauphine Recherches en Management [DRM]
Chevallier, Julien
Abstract (EN)
This article proposes a new empirical methodology for computing a cross-market volatility index - coined CMIX - based on the Factor-Dynamic Conditional Correlation (DCC) model, implemented on volatility surprises. This approach solves problems in treating high-dimensional data and estimating time-varying conditional correlations. We provide an application to multi-asset market data composed of equities, bonds, foreign exchange rates and commodities during 1983-2013. This new methodology may be attractive to asset managers, because it provides a simple way to hedge multi-asset portfolios with derivatives contracts written on the CMIX.
Subjects / Keywords
cross-market index; Factor-DCC; volatility surprise; asset management
JEL
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
C51 - Model Construction and Estimation
C58 - Financial Econometrics
G10 - General
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
G14 - Information and Market Efficiency; Event Studies; Insider Trading