| Summary: | 碩士 === 淡江大學 === 財務金融學系碩士班 === 95 === The purpose of this research is to test smooth transition for the relationship between volatility and each of its underlying asset and related assets. At the beginning, we use ARDL bounding tests to test the long run and short run relationship between volatility and each of its underlying assets and related assets. Then, we show that the logistic smooth transition error correction model has a better explained than a linear model. We consider the error correction term as the transition variable which is estimated from an underlying cointegrating relationship predicted by the error correction representation of ARDL model.
The results as follow: First, not surprisingly, there is a negative and statistically significant relationship between volatility and each of its underlying asset and related assets. Second, VIX and its underlying asset have stronger negative relationship than with other related assets. Finally, the LSTECM model can effectively catch these nonlinear relationships. Thus traders willing to enter oversold markets should wait until extremely high levels of volatility are witnessed, and their strategy should be strictly on a short-term basis.
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