Volatility dynamics under an endogenous Markov-switching framework: a cross-market approach
- Authors
- Song, Wonho; Ryu, Doojin; Webb, Robert I.
- Issue Date
- Sep-2018
- Publisher
- ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
- Keywords
- Cross-market approach; Endogenous Markov-switching; Implied volatility index; VIX; VKOSPI
- Citation
- QUANTITATIVE FINANCE, v.18, no.9, pp 1559 - 1571
- Pages
- 13
- Journal Title
- QUANTITATIVE FINANCE
- Volume
- 18
- Number
- 9
- Start Page
- 1559
- End Page
- 1571
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/1520
- DOI
- 10.1080/14697688.2018.1444551
- ISSN
- 1469-7688
1469-7696
- Abstract
- This study uses an endogenous Markov-switching framework to examine the interrelatedness of the volatility dynamics of the US and Korean markets. Previous literature assumes that the US market implied volatility index is exogenous to the Korean implied volatility index. Here, we allow for correlations between the US and Korean variables and suggest two types of endogeneity, namely endogeneity in the regressors and in the regime-switching probabilities. The estimation results show that both types of endogeneity are present in the US variables and that the parameter estimates are quite different when endogeneity is considered, indicating a serious endogeneity bias in the parameter estimates. The results of the endogeneity test for the regressors show that the effects of global shocks are often persistent and may last for as long as six periods. Sub-period analyses indicate that the degrees of endogeneity were especially strong during the global financial crisis.
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Collections - College of Business & Economics > School of Economics > 1. Journal Articles
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