Financial Integration Without the Volatility

Volatility of Volatility of Financial Markets

We present empirical evidence for considering volatility of Eurodollar futures as a stochastic process, requiring a generalization of the standard Black-Scholes (BS) model which treats volatility as a constant. We use a previous development of a statistical mechanics of financial markets (SMFM) to model these issues. Ke ywords: options; eurodollar; volatility; statistical mechanics

Financial Frictions, Financial Shocks, and Aggregate Volatility

I revisit the Great Inflation and the Great Moderation for nominal and real variables. I document a dichotomy in the evolution of the cyclical volatility of financial variables since the mid-1980s. While financial price variables are smoother during the Great Moderation, financial quantity measures experience an immoderation. A model with financial frictions and financial shocks allowing for st...

Determinants Of Financial Integration In The East Asia- Pacific Region

Modelling Multivariate Asymmetric Financial Volatility

The univariate Generalised Autoregressive Conditional Heterscedasticity (GARCH) model has successfully captured the symmetric conditional volatility in a wide range of time series financial returns. Although multivariate effects across assets can be captured through modelling the conditional correlations, the univariate GARCH model has two important restrictions in that it: (1) does not accommo...

Integration of Financial Markets and National Price Levels: The Role of Exchange Rate Volatility

How does international financial integration affect national price levels? To analyze this question, this paper formulates a two-country open economy stickyprice model under either segmented or complete asset markets. It is shown that the effect of financial integration, i.e. moving from segmented to complete asset markets, is regime-dependent. Under managed exchange rates, financial integratio...