Volatility equicorrelation: A cross-market perspective

•DECO model applied to cross-market dataset.•Update of the concept of 'volatility surprise'.•Average volatility equicorrelation across markets around 15%.

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 of 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.