Impacts of oil implied volatility shocks on stock implied volatility in China: Empirical evidence from a quantile regression approach
Guangda Ouyang and
Energy Economics, 2019, vol. 80, issue C, 297-309
This paper investigates the impacts of changes in the implied volatility index of the oil market (OVX) on the changes in the implied volatility index of the Chinese stock market (VXFXI). A quantile regression approach is applied to our empirical analysis, as this approach can perform a more detailed investigation under different market conditions. Moreover, we test whether the VXFXI changes would respond with lags and asymmetry to the OVX changes. Our empirical results show that the impacts of the OVX changes on the VXFXI changes are positive and tend to be stronger in bearish markets. Furthermore, the results of testing lagged effects reveal that strong linkages between the two variables are transient in different market conditions, which don't support the gradual information diffusion hypothesis very well. Finally, we find that the OVX changes can asymmetrically affect the VXFXI changes. Specifically, the negative OVX changes have stronger effects under bullish market conditions, while the positive OVX changes play a more important role during bearish periods.
Keywords: Implied volatility indices; Oil market; Chinese stock market; Quantile regression; Gradual information diffusion hypothesis (search for similar items in EconPapers)
JEL-codes: C21 E44 G12 G15 G41 Q43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:80:y:2019:i:c:p:297-309
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