Article ID Journal Published Year Pages File Type
5100704 Journal of Financial Markets 2016 40 Pages PDF
Abstract
We study spillovers among daily returns and innovations in the option-implied risk-neutral volatility and skewness of the G10 currencies. Using an empirical network model, we uncover substantial time variation in the interaction of returns and risk measures, both within and between currencies. We find that aggregate spillover intensity is countercyclical with respect to the federal funds rate and increases in periods of financial stress. Cross-currency spillovers of volatility and especially of skewness increase in times of stress, reflecting greater systematic risk. Similarly, in such times, returns become more sensitive to risk measures and vice versa.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, , ,