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Reflexivity And Interactions In Modern Financial Markets: The Case Of Volatility Indices

Author

Listed:
  • Luca Bagato

    (London Stock Exchange Group and Universita` Cattolica del Sacro Cuore (Italy))

  • Alessio Gioia

    (Portfolio Manager and Financial Analyst, Mantova (Italy))

  • Enrico Mandelli

    (Borsa Italiana, London Stock Exchange Group (Italy))

Abstract

Reflexivity Theory rejects the basic assumption of the classical theory that financial markets totally and instantaneously absorb the information flow expressing an equilibrium price for each asset class. In this study we empirically investigate the presence of Reflexivity among Volatility Indices, Equity Indices and other economic and financial indicators, such as the US Economic Policy Uncertainty Index. We introduce a multi-step statistical model able to recognize stressed market periods and identify breakout points and short-term trend and reversal signals. We also investigate reverse causality and the response of our model to volatility shocks. Our conclusions are oriented towards a confirmation of Reflexivity Theory in the historical time series of listed Volatility Indices.

Suggested Citation

  • Luca Bagato & Alessio Gioia & Enrico Mandelli, 2018. "Reflexivity And Interactions In Modern Financial Markets: The Case Of Volatility Indices," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 126(3), pages 231-254.
    • Handle: RePEc:vep:journl:y:2018:v:126:i:3:p:231-254
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    Citations

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    Cited by:

    1. Michele Anelli & Michele Patanè, 2023. "The “Perpetually†Efficient Stock Market Nonsense: The Gaslighting Effects," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 12(2), pages 1-1.

    More about this item

    Keywords

    Reflexivity; Volatility Indices; Hurst Indicators;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G40 - Financial Economics - - Behavioral Finance - - - General

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