Contemporaneous dependence between euro, crude oil, and gold returns and their respective implied volatility changes. Evidence from the local Gaussian correlation approach

Panos Fousekis

Studies in Economics and Finance, 2023, vol. 40, issue 5, 795-813

Abstract: Purpose - This study aims to assess the contemporaneous dependence between euro, crude oil and gold returns and their respective implied volatility changes. Design/methodology/approach - The empirical analysis relies on daily data for the period 2015–2022 and the local Gaussian correlation (LGC) approach that is suitable for estimating dependence between two stochastic processes at any point of their joint distribution. Findings - (a) The global correlation coefficients are negative for the euro and crude oil and positive for gold, implying that in the first two markets’ traders are more concerned with sudden price downswings while in the third with sudden upswings. (b) The detailed local analysis, however, shows that traders 2019 attitudes may change with the underlying state of the market and that risk reversals are more likely to occur at the upper extremes of the joint distributions. (c) The pattern of dependence between price returns and implied volatility changes is asymmetric. Originality/value - To the best of the author’s knowledge, this is the first work that uses the highly flexible LGC approach to analyze the link between price returns and implied volatility changes either in stock or in commodities futures markets. The empirical results provide useful insights into traders’ risk attitudes in different market states.

Keywords: Euro; Crude oil; Gold; Returns; Implied volatility; C1; G1 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-11-2022-0531

DOI: 10.1108/SEF-11-2022-0531

Access Statistics for this article

Studies in Economics and Finance is currently edited by Prof Niklas Wagner

More articles in Studies in Economics and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().