Market Volatility As a Financial Soundness Indicator: An Application to Israel
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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. 2003/047
Subject:
Asset prices Exchange rates Financial institutions Financial markets Financial regulation and supervision Foreign exchange Market risk Prices Stock markets Treasury bills and bonds
English
Publication Date:
March 1, 2003
ISBN/ISSN:
9781451846669/1018-5941
Stock No:
WPIEA0472003
Pages:
39
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