Volatility Linkages across Equity, Money and Bond Markets: An Implied Volatility Approach

27 Pages Posted: 3 Mar 2008

See all articles by Kent Wang

Kent Wang

University of Queensland

Date Written: June 2008

Abstract

This study proposes a simple way for examining volatility linkages between S&P 500, Eurodollar futures and 30-year Treasury bond futures markets using implied volatility. Four-year Correlation between daily implied volatilities in the three markets is used to assess market linkages. Measurement biases and spurious correlation effect are considered and controlled for. It is found that there is relatively high and robust correlation between the equity and money markets, but that the linkages between the other market pairs are weak and spurious. We replicated the approach of Fleming, Kirby and Ostdiek (1998) and find that the results are nearly identical and conclude that our approach is simpler and robust to implement.

Keywords: Market Volatility Linkage, Implied Volatility, Spurious Regression, GMM

JEL Classification: G12, G14

Suggested Citation

Wang, Kent, Volatility Linkages across Equity, Money and Bond Markets: An Implied Volatility Approach (June 2008). Available at SSRN: https://ssrn.com/abstract=1099593 or http://dx.doi.org/10.2139/ssrn.1099593

Kent Wang (Contact Author)

University of Queensland ( email )

Australia

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