HEC-Ecole de gestion de l'Université de Liège
HEC-Ecole de gestion de l'Université de Liège

Financial Uncertainty and Asset Volatility Dynamics: Insights from an Extended Stochastic Volatility Model

Duysinx, Antoine ULiège
Promotor(s) : Hambuckers, Julien ULiège
Date of defense : 4-Sep-2023/8-Sep-2023 • Permalink :
Title : Financial Uncertainty and Asset Volatility Dynamics: Insights from an Extended Stochastic Volatility Model
Translated title : [fr] Incertitude financière et volatilité des actifs : perspectives issues d'un modèle de volatilité stochastique étendu
Author : Duysinx, Antoine ULiège
Date of defense  : 4-Sep-2023/8-Sep-2023
Advisor(s) : Hambuckers, Julien ULiège
Committee's member(s) : Ulm, Maren ULiège
Crucil, Romain ULiège
Language : English
Keywords : [en] Financial uncertainty
[en] stochastic volatility model
[en] volatility modelling
[en] volatility forecasting
[en] investor sentiment
[en] daily financial uncertainty index
[en] markov chain monte carlo
[fr] incertitude financière
[fr] volatilité
Discipline(s) : Business & economic sciences > Finance
Business & economic sciences > Quantitative methods in economics & management
Target public : Researchers
Professionals of domain
Institution(s) : Université de Liège, Liège, Belgique
Degree: Master en ingénieur de gestion, à finalité spécialisée en Financial Engineering
Faculty: Master thesis of the HEC-Ecole de gestion de l'Université de Liège


[en] This master’s thesis attempts to provide additional insights into the intricate relationship between financial uncertainty and asset volatility. Using the extended stochastic volatility model (SVX) of Ulm and Hambuckers (2022), we explore the effects of financial uncertainty on the conditional volatility of a diverse set of 12 financial assets. Our analysis is conducted over the period spanning from November 2017 to May 2023, and relies on a daily synthetic financial uncertainty index that we constructed by means of a principal component analysis. In our examination, we uncover that a higher financial uncertainty level generally reinforces volatility. However, this influence is heterogeneous in magnitude across the various categories of assets examined.
Importantly, our study also unveils that a part of the effects of financial uncertainty is propagated to asset volatility through investor sentiment. Knowing that uncertainty rises sharply in times of market stress, our study also demonstrates that incorporating the financial uncertainty level substantially improves both in-sample and out-of-sample volatility modelling performance during these periods. Interestingly, this positive effect extends to normal market conditions as well, albeit to a lesser extent. This improvement also materializes in the construction of risk metrics that better capture tail events and extreme market conditions.



Access s181411Duysinx.pdf
Size: 2.83 MB
Format: Adobe PDF


  • Duysinx, Antoine ULiège Université de Liège > Master ingé. gest., à fin.


Committee's member(s)

  • Total number of views 223
  • Total number of downloads 127

All documents available on MatheO are protected by copyright and subject to the usual rules for fair use.
The University of Liège does not guarantee the scientific quality of these students' works or the accuracy of all the information they contain.