Working Paper: CEPR ID: DP12824
Authors: Enrique Sentana
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.
Keywords: correlation; dependence; stock markets; volatility; derivatives
JEL Codes: C58; G11; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic downturns (F44) | volatility (E32) |
| diversification strategies (L19) | asset returns (G19) |
| financial crises (G01) | market contagion (G10) |