Beyond the Traditional VIX: A Novel Approach to Identifying Uncertainty
Shocks in Financial Markets
Beyond the Traditional VIX: A Novel Approach to Identifying Uncertainty
Shocks in Financial Markets
We introduce a new identification strategy for uncertainty shocks to explain macroeconomic volatility in financial markets. The Chicago Board Options Exchange Volatility Index (VIX) measures market expectations of future volatility, but traditional methods based on second-moment shocks and time-varying volatility of the VIX often fail to capture the non-Gaussian, heavy-tailed …