Market Volatility as a Financial Soundness Indicator: An Application to Israel

 
Author/Editor: Méndez Morales, Armando ; Schumacher, Liliana
 
Publication Date: March 01, 2003
 
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Summary: Financial decisions of economic agents are based on volatility considerations. However, no aggregate indicators have been used by policymakers and regulators to assess the market risk environment. This paper applies a market volatility indicator to analyze the Israeli's transition toward inflation targeting. Unlike conventional measures of volatility, it shows a substantial decline once volatility is measured against the minimum variance for the same returns on assets. Using a conventional Multivariate GARCH model, we find that interest rates sensitivity to changes in the risk environment may be important for a correct identification of volatility patterns of individual assets.
 
Series: Working Paper No. 03/47
Subject(s): Stock markets | Israel | Financial Soundness indicators | Economic models

Author's Keyword(s): Volatility | Risk | Indicator | Portfolio
 
English
Publication Date: March 01, 2003
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0472003 Pages: 38
Price:
US$15.00 (Academic Rate:
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