Discussion Paper Details

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Title: Volatility, diversification and contagion

Author(s): Enrique Sentana

Publication Date: March 2018

Keyword(s): Correlation, Dependence, Stock Markets and Volatility derivatives

Programme Area(s): Financial Economics

Abstract: In this paper I describe in detail the concepts of volatility, diversification and contagion, three basic keys to understand the seemingly whimsical behaviour of financial markets. The presentation is deliberately non-technical and largely self-contained, with most required concepts defined along the way. Nevertheless, the analysis is mostly empirically oriented, with an emphasis on the methods that have been proposed to measure those concepts and a discussion of the stylised facts that the resulting measures imply. I also use those measures to study the effects of the financial crisis of 2007-2008 and the euro sovereign debt crisis of 2010-2012 on Spain.

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Bibliographic Reference

Sentana, E. 2018. 'Volatility, diversification and contagion'. London, Centre for Economic Policy Research.