Compounding Political and Energy Risks: A clustered stochastic COVOL model
The DEMS Economics Seminar series is proud to host
Monica Billio
(University Ca’ Foscari Venezia)
with O. Baltodano Lopez, R. Casarin, M. Costola
ABSTRACT
This paper aims to investigate the relationship between different sources of risk related to energy, that is, returns on the energy sector, energy uncertainty, and geopolitical risk. To this aim, we provide a parsimonious and flexible model for extracting common volatility factors (COVOL) from a cross-section of assets. We assume there are groups of assets with different exposure levels across the groups and similar levels within each group. The membership of the assets to the groups is unknown, which naturally calls for using stochastic partition models. The latent factors have a gamma autoregressive structure, which allows for persistence. We provide some theoretical properties of the new clustered COVOL model, a Bayesian inference procedure well suited for latent variable models, and an empirical analysis of the volatility transmission in a multi-country perspective.
The seminar will be in presence, Seminar Room 2104, Building U7-2nd floor