A New Channel for Global Volatility Propagation

39 Pages Posted: 8 May 2020 Last revised: 30 Mar 2021

See all articles by Shuning Chen

Shuning Chen

Tianjin University; Zhongnan University of Economics and Law

Jian-Xin Wang

University of Technology Sydney; Financial Research Network (FIRN)

Date Written: March 20, 2021

Abstract

We compare two channels for global impact on local volatility: the direct channel in which global variables affect the expected value of local volatility, and a new channel in which they affect local volatility persistence. Using 21 equity indices in 17 developed economies, we show that (1) global variables are the main determinants of local volatility persistence; (2) the volatility-persistence channel contributes far more to local volatility variations than the direct channel; and (3) global return contributes far more to local volatility variations than global volatility. The global impact on local volatility persistence help explain global commonality in volatility dynamics.

Keywords: international volatility propagation, conditional volatility persistence, market volatility, global return, global volatility

JEL Classification: G12, G15, C22, F36

Suggested Citation

Chen, Shuning and Chen, Shuning and Wang, Jian-Xin, A New Channel for Global Volatility Propagation (March 20, 2021). Available at SSRN: https://ssrn.com/abstract=3584863 or http://dx.doi.org/10.2139/ssrn.3584863

Shuning Chen

Tianjin University ( email )

92, Weijin Road
Nankai District
Tianjin, Tianjin 300072
China

HOME PAGE: http://www.tju.edu.cn

Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Jian-Xin Wang (Contact Author)

University of Technology Sydney ( email )

UTS Business School
Finance Decipline
Sydney, NSW
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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