Nonlinear adjustments of volatility expectations to forecast errors: Evidence from Markov-Regime switches in implied volatility

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dc.contributor.authorNishina, Kazuhiko
dc.contributor.authorMaghrebi, Nabil
dc.contributor.authorHolmes, Mark J.
dc.date.accessioned2012-11-18T21:01:13Z
dc.date.available2012-11-18T21:01:13Z
dc.date.copyright2012-09
dc.date.issued2012
dc.description.abstractThis paper tests for nonlinearities in the behavior of volatility expectations based on model-free implied volatility indices. Using Markov regime-switching models, the empirical evidence from the German, Japanese and U.S. markets suggests that there are indeed regime-specific levels of volatility expectations. Whereas the regimes seem to be governed by the degree of serial correlation and adjustment to forecast errors, there is no evidence of significant leverage effects. The frequency of regime shifts in volatility expectations is affected by the onset of financial crises, which have the effect of increasing the likelihood of regimes driven by lower autoregressive effects and faster speeds of adjustment. The evidence suggests that despite the heterogeneous beliefs of market participants, implied volatility indices provide a measure of consensus expectations that can be useful in understanding the nonlinear behavior of volatility expectations during periods of financial instabilityen_NZ
dc.identifier.citationNishina, K., Maghrebi, N., & Holmes, M. J. (2012). Nonlinear adjustments of volatility expectations to forecast errors: Evidence from Markov-Regime switches in implied volatility. Review of Pacific Basin Financial Markets and Policies, 15(3).en_NZ
dc.identifier.doi10.1142/S0219091512500075en_NZ
dc.identifier.issn0219-0915
dc.identifier.urihttps://hdl.handle.net/10289/6850
dc.language.isoen
dc.publisherWorld Scientific Publishing Co.en_NZ
dc.relation.isPartOfReview of Pacific Basin Financial Markets and Policiesen_NZ
dc.relation.ispartofReview of Pacific Basin Financial Markets and Policies
dc.subjecteconomic analysisen_NZ
dc.subjecteconomic instabilityen_NZ
dc.subjectempirical analysisen_NZ
dc.subjecterror analysisen_NZ
dc.subjectfinancial crisisen_NZ
dc.subjectforecasting methoden_NZ
dc.subjectMarkov chainen_NZ
dc.subjectmodelingen_NZ
dc.titleNonlinear adjustments of volatility expectations to forecast errors: Evidence from Markov-Regime switches in implied volatilityen_NZ
dc.typeJournal Articleen_NZ
pubs.begin-page1en_NZ
pubs.elements-id38082
pubs.end-page23en_NZ
pubs.issue3en_NZ
pubs.volume15en_NZ
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