REFLEXIVITY AND INTERACTIONS IN MODERN FINANCIAL MARKETS: THE CASE OF VOLATILITY INDICES

Luca Bagato (), Alessio Gioia and Enrico Mandelli
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Luca Bagato: London Stock Exchange Group and Universita` Cattolica del Sacro Cuore (Italy)
Alessio Gioia: Portfolio Manager and Financial Analyst, Mantova (Italy)
Enrico Mandelli: Borsa Italiana, London Stock Exchange Group (Italy)

Rivista Internazionale di Scienze Sociali, 2018, vol. 126, issue 3, 231-254

Abstract: Reflexivity Theory rejects the basic assumption of the classical theory that financial markets totally and instantaneously absorb the information flow expressing an equilibrium price for each asset class. In this study we empirically investigate the presence of Reflexivity among Volatility Indices, Equity Indices and other economic and financial indicators, such as the US Economic Policy Uncertainty Index. We introduce a multi-step statistical model able to recognize stressed market periods and identify breakout points and short-term trend and reversal signals. We also investigate reverse causality and the response of our model to volatility shocks. Our conclusions are oriented towards a confirmation of Reflexivity Theory in the historical time series of listed Volatility Indices.

Keywords: Reflexivity; Volatility Indices; Hurst Indicators (search for similar items in EconPapers)
JEL-codes: G12 G17 G40 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:vep:journl:y:2018:v:126:i:3:p:231-254

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