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Volatility equicorrelation: A cross-market perspective

Julien Chevallier and Sofiane Aboura
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Sofiane Aboura: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper contains the first empirical application of the Dynamic Equicorrelation (DECO) model to a cross-market dataset composed of equities, bonds, foreign exchange rates and commodities during 1983-2013. The originality of our approach consists in examining the volatility equicorrelations, by updating the concept of ‘volatility surprise'. We document that the average volatility equicorrelation across markets is around 15%, while being time-varying with regime shifts before/after September 2005 and with a low mean-reversion level.

Keywords: DECO; Cross-market; Volatility equicorrelation (search for similar items in EconPapers)
Date: 2014
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01531237
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Published in Economics Letters, Elsevier, 2014, 122 (2), pp.289-295. ⟨10.1016/j.econlet.2013.12.008⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01531237

DOI: 10.1016/j.econlet.2013.12.008

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