Contagion and Interdependencies: A Dynamic Connectedness approach among Implied Volatilities

Contagion and Interdependencies: A Dynamic Connectedness approach among Implied Volatilities

This study employs the TVP-VAR approach to capture the degree of interdependencies and contagion among sixteen implied volatilities. The 16 daily implied volatility indices comprise the implied volatility from various financial assets, such as conventional equities, commodities, and currencies, in n...

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Bibliographic Details
Published in:Cogent economics & finance Vol. 10; no. 1; pp. 1 - 20
Main Authors: Amoako, Gilbert Kwabena, Boateng, Ebenezer, Asafo-Adjei, Emmanuel, Amoanyi, Daniel Kofi, Adam, Anokye M
Format: Journal Article
Language:English
Published: Abingdon Taylor & Francis 31-12-2022
Cogent
Taylor & Francis Ltd
Taylor & Francis Group
Subjects:
adaptability
Asset allocation
Connectedness
Contagion
Coronaviruses
COVID-19
Currency
Disease transmission
Economic crisis
economic events
Economics
Electronic trading systems
heterogeneity
International finance
Investments
Missing data
net persistent receivers
Prices
Securities markets
Stock exchanges
time-varying
Transmitters
Volatility
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Summary:This study employs the TVP-VAR approach to capture the degree of interdependencies and contagion among sixteen implied volatilities. The 16 daily implied volatility indices comprise the implied volatility from various financial assets, such as conventional equities, commodities, and currencies, in national, regional, or worldwide indexes. After missing data were expunged, the daily data span between 5 August 2016 and 18 August 2021 inclusive, yielding 1758 observations. We reveal strong evidence to support that the network of implied volatilities is highly connected. Nonetheless, dynamic connectedness varies across time demonstrating that the markets are heterogenous and adaptive. The rise in connectedness during crisis and non-crisis periods indicates that both contagion and interdependencies are germane to implied volatilities. The outcome from the net directional connectedness underscores that the CBOE Euro Currency Volatility, CBOE Crude Oil Volatility, CBOE Gold Volatility, Hang Seng Index (HSI) and CAC 40 VIX are net persistent receivers whereas CBOE Russell 2000 Volatility, CBOE NASDAQ 100 Volatility, DJIA Volatility, CBOE VIX and CBOE OEX Implied Volatility are persistent net transmitters. The size and direction of net connectedness enlighten investors to pair persistent net receivers and transmitters. Practical, policy and theoretical implications are provided.
ISSN:2332-2039
2332-2039
DOI:10.1080/23322039.2022.2148366