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Which Effect Drives the Equity Market during Stress Periods?

Sofiane Aboura ()

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Abstract: Asymmetric volatility occupies a central role in the risk-return relation. However, this asymmetry has not been examined during stress periods. This article fills this gap by studying this relation at the tail distribution level with an empirical test on the French market from the creation of the implied volatility index in October 1997 until January 2013. Using a complete set of econometrical analysis before applying the multivariate extreme value theory, this article shows that the asymptotic dependence occurs only for the crash scenario in which the feedback effect dominates the leverage effect. This result has implications on the pricing and hedging of options contracts.

Keywords: Feedback Effect; Leverage Effect; Extreme Value Theory; Volatility; Risk Management (search for similar items in EconPapers)
Date: 2015-12-01
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01348718
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Published in Annals of Economics and Statistics, CNGP-INSEE, 2015, 119, pp.269-288. ⟨10.15609/annaeconstat2009.119-120.269⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01348718

DOI: 10.15609/annaeconstat2009.119-120.269

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