Structural Volatility Impulse Response Analysis
Type
conference speech
Date Issued
2022-06-16
Author(s)
Abstract
We make three contributions to the volatility impulse response function (VIRF) of Hafner and Herwartz (2006), the most widely applied impulse response function in the context of multivariate volatility models. Firstly, we derive its law in the BEKK model. Secondly, we present a structural embedding of the VIRF by relying on recent
developments for identification in MGARCH models. This broadens the use case of the VIRF, to date limited to historical analyses, by allowing for counterfactual and out-of-sample scenario analyses of volatility responses. Thirdly, we show how to endow the VIRF with a causal interpretation. We illustrate the merits of a structural
VIRF analysis by investigating the impacts of historical shock events as well as the consequences of well-defined future shock scenarios on the U.S. equity, government bond and foreign exchange market. Our findings suggest that it is vital to be able to assess the statistical significance of volatility impulse responses.
developments for identification in MGARCH models. This broadens the use case of the VIRF, to date limited to historical analyses, by allowing for counterfactual and out-of-sample scenario analyses of volatility responses. Thirdly, we show how to endow the VIRF with a causal interpretation. We illustrate the merits of a structural
VIRF analysis by investigating the impacts of historical shock events as well as the consequences of well-defined future shock scenarios on the U.S. equity, government bond and foreign exchange market. Our findings suggest that it is vital to be able to assess the statistical significance of volatility impulse responses.
Funding(s)
Language
English
Event Title
Quantitative Finance and Financial Econometrics QFFE Conference 2022
Event Location
Marseille
Event Date
16.06.2022 - 17.06.2022
Subject(s)
Eprints ID
266900