Local and Spillover Shocks in Implied Market Volatility: Evidence for the U.S. And Germany

24 Pages Posted: 8 Mar 2004

See all articles by Alexander Szimayer

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration

Niklas Wagner

Passau University

Date Written: February 2004

Abstract

The occurrence and the transmission of large shocks in international equity markets is of essential interest to the study of market integration and financial crises. To this aim, implied market volatility allows to monitor ex-ante risk expectations in different markets. We investigate the behavior of implied market volatility indices for the U.S. and Germany under a straightforward mean reversion model that allows for Poisson jumps. Our empirical findings for daily data in the period 1992 to 2002 provide evidence of significant positive jumps, i.e. situations of market stress with positive unexpected changes in ex-ante risk assessments. Jump events are mostly country-specific with some evidence of volatility spillover. Analysis of public information around jump dates indicates two basic categories of events. First, crisis events occurring under spillover shocks. Second, information release events which include three subcategories, namely---worries about as well as actual---unexpected releases concerning U.S. monetary policy, macroeconomic data and corporate profits or single profit warnings. Additionally, foreign exchange market movements may cause volatility shocks.

Keywords: implied volatility, volatility indices, volatility spillover, market stress, public news releases

JEL Classification: C13, G13

Suggested Citation

Szimayer, Alexander and Wagner, Niklas F., Local and Spillover Shocks in Implied Market Volatility: Evidence for the U.S. And Germany (February 2004). Available at SSRN: https://ssrn.com/abstract=240826 or http://dx.doi.org/10.2139/ssrn.240826

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

Niklas F. Wagner (Contact Author)

Passau University ( email )

Innstrasse 27
Passau, 94030
Germany

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