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

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Price:  $15.00

Author/Editor: Armando Méndez Morales, Liliana Schumacher
Release Date: © March, 2003
ISBN : 978-1-45184-666-9
Stock #: WPIEA0472003
Stock Status: On back-order

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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.

More publications in this series: Working Papers

More publications by: Armando Méndez Morales ; Liliana Schumacher