Modeling Euro STOXX 50 volatility with common and market-specific components

Fabrizio Cipollini and Giampiero Gallo ()

Econometrics and Statistics, 2019, vol. 11, issue C, 22-42

Abstract: Similar volatility patterns are observables in the Euro area across national indices, suggesting the possibility of an underlying common component as a consequence of financial and monetary integration. This peculiar interdependence across market volatilities is captured by an additive component vector Multiplicative Error Model (vMEM) where the volatility dynamics is split between a common and a vector of market-specific components. When extracted from five major market indices and used as additional regressors in a HAR specification for the Euro STOXX 50 (a Euro area wide index) volatility, these components replace the terms that mimic long memory in the HAR, providing an interesting interpretation for volatility dynamics.

Keywords: Realized volatility; (vector) Multiplicative Error Models; GMM; HAR; Common component; Euro area (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Working Paper: Modeling Euro STOXX 50 Volatility with Common and Market–specific Components (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosta:v:11:y:2019:i:c:p:22-42

DOI: 10.1016/j.ecosta.2018.09.004

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