DJ EuroStoxx50 Futures Volatility Forecast (12/10/2010)

The DJ EuroStoxx50 Futures Index is a very good proxy for analysing European’s financial situation.  Clearly, the TGARCH volatility constantly decreased in the last 5 months signalling that probably the up movement could soon come to an end.

As stated in many academic researches, stochastic volatility is mean reverting and most of time an increase in volatility is registered  when there is a drop in the market.

Therefore, an augment in volatility would, in this case, bring the market down.   Such a hypothesis seems to be confirmed by the fact that the TGARCH estimations are drammatically low ,in fact, they ranged between 1% and 1.5% over the last 5 months and a further drop appear to be quite far from happening.

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