Volatility Risk Pass-Through

50 Pages Posted: 27 Nov 2015 Last revised: 12 Nov 2018

See all articles by Ric Colacito

Ric Colacito

University of North Carolina Kenan-Flagler Business School

Mariano (Max) Massimiliano Croce

Finance Department, Bocconi University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of North Carolina Kenan-Flagler Business School

Yang Liu

The University of Hong Kong - Faculty of Business and Economics

Ivan Shaliastovich

University of Wisconsin - Madison

Multiple version iconThere are 4 versions of this paper

Date Written: November 12, 2018

Abstract

We develop a novel measure of volatility pass-through to assess international propagation of output volatility shocks to macroeconomic aggregates, equity prices, and currencies. An increase in country’s output volatility is associated with a decrease in its output, consumption, and net exports. The average consumption pass-through is 50% (a 1% increase in output volatility increases consumption volatility by 0.5%) and it increases to 70% for shocks originating in smaller countries. The equity volatility pass-through is 90%, whereas the link between volatility of currency and fundamentals is weak. A novel channel of risk sharing of volatility risks can explain our empirical findings.

Keywords: Volatility pass-through, foreign exchange disconnect, risk sharing

JEL Classification: C62; F31; G12

Suggested Citation

Colacito, Riccardo and Croce, Mariano Massimiliano and Liu, Yang and Shaliastovich, Ivan, Volatility Risk Pass-Through (November 12, 2018). Available at SSRN: https://ssrn.com/abstract=2695343 or http://dx.doi.org/10.2139/ssrn.2695343

Riccardo Colacito

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://www.unc.edu/~colacitr

Mariano Massimiliano Croce (Contact Author)

Finance Department, Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/view/mmcroce/home

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of North Carolina Kenan-Flagler Business School ( email )

McColl Builiding
Chapel Hill, NC North Carolina 27599-3490
United States

HOME PAGE: http://https://sites.google.com/view/mmcroce/home

Yang Liu

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Ivan Shaliastovich

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
427
rank
64,782
Abstract Views
2,445
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information