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Tail risk and the return-volatility relation

Sofiane Aboura and Julien Chevallier ()

Research in International Business and Finance, 2018, vol. 46, issue C, 16-29

Abstract: This article brings new insights on the time-varying leverage and feedback effects in equity markets. The lead–lag return-volatility relation is examined by resorting to time-varying asymmetric dynamic conditional correlation models that allows for asymmetry (ADCC) and spillovers (ADCCX) with tail risk lagged variables (SKEW, VVIX) from 1990 to 2014. Empirical findings reveal that the dynamic leverage effect is the most influential in driving equity markets. The volatility of volatility (VVIX) exhibits a significant influence on the dynamic feedback effect only.

Keywords: Tail risk; Leverage effect; Feedback effect; Dynamic conditional correlation; VIX; SKEW; VVIX (search for similar items in EconPapers)
JEL-codes: C4 G13 G32 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:riibaf:v:46:y:2018:i:c:p:16-29