What are the events that shake our world? Measuring and hedging global COVOL

• 成果类型: Article
• 署名作者: Engle, Robert F.; Campos-Martins, Susana
• 署名单位: New York University; University of Oxford; Universidade do Minho
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2022.09.009
• 发表日期: 2023
• 页码: 221-242
• 关键词: Global events; Volatility comovements; Multiplicative factor models; Geopolitical Risk; Portfolio optimization

摘要

Some events impact volatilities of most assets, asset classes, sectors and countries, causing serious damage to investment portfolios. The magnitude of such shocks is defined as global COVOL which is an abbreviation for global common volatility, a broad measure of all types of global financial risk. This paper introduces a statistical formulation of such events as common volatility innovations in both a multivariate volatility and an asset pricing context. Simulations verify the statistical performance of a simple but novel estimator and of a test to detect global COVOL. Two empirical examples show the events that have had the biggest impact on financial markets. The results are useful for portfolio optimization and risk forecasting.(c) 2022 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license ( http://creativecommons.org/licenses/by/4.0/ )