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How does Investor Fear Travel? Implied Volatility across Geographical Markets and Asset Classes
Keywords: 5 words maximum
Volatility, geography, asset classes, returns
Very short description for use in the program to help attendees understand more than a title can describe
We analyze the implied volatility-return relationship across asset classes, geographical regions, and time, extending efforts documenting the instantaneous relation between implied volatility changes and index returns. Using a GARCH process with lags, we confirm that implied volatility depends on the immediate index changes. However, contemporaneous volatility changes are also explained by lagged index and volatility. While short-term volatility is heavily asymmetric on the side of negative moves, there is long-term indifference between positive and negative moves. Volatility transfers from larger, primary markets to smaller, secondary markets. Volatility in larger markets also transfers to the commodity and currency markets.
Lead & Corresponding Author
Brian C. Payne, US Air Force Academy
Job Title
Associate Professor