We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Leverage and Volatility Feedback Effects and Conditional Dependence Index: A Nonparametric Study.
- Authors
Yiguo Sun; Ximing Wu
- Abstract
This paper studies the contemporaneous relationship between S&P 500 index returns and log-increments of the market volatility index (VIX) via a nonparametric copula method. Specifically, we propose a conditional dependence index to investigate how the dependence between the two series varies across different segments of the market return distribution. We find that: (a) the two series exhibit strong, negative, extreme tail dependence; (b) the negative dependence is stronger in extreme bearish markets than in extreme bullish markets; (c) the dependence gradually weakens as the market return moves toward the center of its distribution, or in quiet markets. The unique dependence structure supports the VIX as a barometer of markets' mood in general. Moreover, applying the proposed method to the S&P 500 returns and the implied variance (VIX²), we find that the nonparametric leverage effect is much stronger than the nonparametric volatility feedback effect, although, in general, both effects are weaker than the dependence relation between the market returns and the log-increments of the VIX.
- Subjects
STANDARD &; Poor's 500 Index; MARKET volatility; FINANCIAL risk; DISTRIBUTION (Probability theory); NONPARAMETRIC estimation
- Publication
Journal of Risk & Financial Management, 2018, Vol 11, Issue 2, p1
- ISSN
1911-8066
- Publication type
Article
- DOI
10.3390/jrfm11020029