Spillover dynamics effects between risk-neutral equity and Treasury volatilities
- Ana González-Urteaga
- Belén Nieto
- Gonzalo Rubio
ISSN: 1869-4195
Year of publication: 2022
Volume: 13
Issue: 4
Pages: 663-708
Type: Article
More publications in: SERIEs : Journal of the Spanish Economic Association
Abstract
Macro-finance asset pricing models provide a rationale for connectedness dynamics between equity and Treasury risk-neutral volatilities. In this paper, we study the total and directional connectedness, in the sense of spillover effects, between risk-neutral volatilities from the equity and Treasury markets. In addition, we analyze the economic and monetary drivers of connectedness dynamics. Most of the time, but especially during bad economic times, we find significant net spillovers from Treasury to equity risk-neutral volatility. The spillover channel between risk-neutral volatilities arises mainly through the government fixed income market