Time-frequency information transmission among financial markets: evidence from implied volatility

Muhammad Abubakr Naeem (), Fiza Qureshi (), Saqib Farid (), Aviral Tiwari and Mohamed Elheddad ()
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Muhammad Abubakr Naeem: University College Dublin
Fiza Qureshi: University of Sindh
Saqib Farid: University of Management & Technology
Mohamed Elheddad: University of Huddersfield

Annals of Operations Research, 2024, vol. 334, issue 1, No 26, 729 pages

Abstract: Abstract In this paper, we utilize the Chicago Board Option Exchange (CBOE) implied volatility indices to estimate the time-frequency information transmission among financial markets from 01.08.2008 to 31.10.2019. In doing so, we utilize the rolling window wavelet correlation (RWWC), Diebold & Yilmaz (The Economic Journal 119: 158–171, 2012), and Barunik & Krehlik (Journal of Financial Econometrics 16: 271–296, 2018). Our empirical findings suggest short-term and long-term dynamic connectedness between implied volatility indices of alternative assets. The long-term analysis findings suggest potential hedging and diversification opportunities that can be exploited by taking offsetting positions across volatility indices. The findings confirm heterogeneity between short-term and long-term connectedness results. Our findings also show superior out of sample hedging effectiveness of GVZ. The implications of the findings are further discussed in the paper.

Keywords: Implied volatility; Time-frequency; Rolling window wavelet correlation; Hedging effectiveness (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10479-021-04266-y

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