Monday, November 26, 2012

Modelling time-varying volatility in financial returns: evidence from the bond markets

Cristina Amado
(Universidade do Minho e NIPE)

Abstract: The 'unusually uncertain' phase in the global financial markets has inspired many researchers to study the effects of ambiguity (or 'Knightian uncertainty') on the decisions made by investors and its implications in the capital markets. We contribute to this literature by using the time-varying GARCH model of Amado and Terasvirta (2011) to analyse whether the increasing uncertainty has caused excess volatility in the US and European government bond markets. In our model, volatility is multiplicatively decomposed into a stable conditional variance and time-varying unconditional volatility components. We suggest that the time-varying risk is captured by the conditional volatility parameters, whereas the time-variation in the unconditional volatility is driven by the level of uncertainty in the markets.

Notice: Jointly organized with ISEG 2S
Monday, November 26, 2012
Time: 11h30
Room: Anfiteatro 3, Edificio Quelhas, ISEG