Inter-market volatility refers to the volatility of the relationship between two different financial markets or instruments, such as:
- Stock market and bond market
- Different sectors within a market
- Different currencies
- Stock market and commodity market
- Different asset classes like stocks and real estate
Inter-market volatility can be measured by comparing the returns or prices of different markets or instruments over a certain period of time.
What is volatility spillover?
The transmission of volatility from one market or asset class to another is called volatility spillover.
What causes Inter-market volatility?
Inter-market volatility can be caused by a variety of factors such as changes in interest rates, economic conditions, and political developments. These changes can affect the relative attractiveness of different markets, causing investors to shift their capital and causing the prices of different markets or instruments to fluctuate.
Why is knowledge of Inter-market volatility important?
Inter-market volatility is important for investors and traders to identify and understand the relationship between different markets and assets and to make better investment decisions. It is also important for risk managers to identify and manage the risks associated with different markets and assets.
For example, if the stock market is going up, and the bond market is going down, this indicates that investors are more willing to take risks and invest in the stock market instead of the bond market, which is a more traditional safe haven. This is an indication that investors are feeling more optimistic about the economy and it might be a good time to invest in the stock market.