The Nature of Volatility Across Financial Instruments

Abstract

We study the distribution of returns for 4,334 instruments in six asset classes, namely US equities, exchange-traded funds, US and Argentine fixed income, Argentine equities and Argentine depositary receipts over foreign shares, using 9.2 million daily observations over ten years. Three findings organise the paper. First, the estimated tail index lies between 2.3 and 3.3 for every class. The variance therefore exists everywhere and the fourth moment nowhere, which renders the F-test, the χ² variance test and the Jarque–Bera test inadmissible on these data. We report them alongside their robust counterparts to show the difference. Second, tail heaviness and volatility are distinct attributes that order the classes differently. The two fixed-income classes have the lowest volatilities and the heaviest relative tails, while the most volatile class in the sample has the lightest. Argentine hard-dollar sovereigns dominate US equity on mean, volatility and Sharpe ratio at the same time while carrying the panel's lowest tail index, so that the mean–variance ranking and the tail ranking point in opposite directions. Third, aggregation thins the tails monotonically without delivering normality by one month, and the mean reversion that would justify horizon-dependent allocation is modest where it exists, with six-month variance ratios of 0.71 to 0.77 for equity-like classes, and absent in Argentine sovereigns. Accounting for the observed distribution rather than a Gaussian match reduces the optimal US equity allocation by 23% for a log-utility investor, and the welfare cost of the Gaussian assumption rises with risk aversion. We separate inference at the pooled and instrument levels throughout and show that the two can disagree sharply. The comparison of US equity against Argentine fixed income yields p ≈ 10⁻⁹⁰ pooled and p = 0.42 across instruments. We argue that the second is the defensible number, and we draw the implications for how risk and horizon profiles should be constructed.

Keywords

Cite this paper

Shehadi Candela, A. (2026). The Nature of Volatility Across Financial Instruments. QUAFI Working Paper No. 2026-05. QUAFI Research.

@techreport{shehadi2026volatility,
  author      = {Shehadi Candela, Agust\'in},
  title       = {The Nature of Volatility Across Financial Instruments},
  institution = {QUAFI Research},
  type        = {QUAFI Working Paper},
  number      = {2026-05},
  year        = {2026}
}

Version history

1. v1.113 Sep 2026exposition revised throughout; structure and register brought in line with journal practice; no change to results or references
2. v1.015 Aug 2026first working-paper draft