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Investors’ risk perceptions in the US and global stock market integration

Hardik A. Marfatia

Research in International Business and Finance, 2020, vol. 52, issue C

Abstract: Investors’ risk perceptions have significant implications for international stock markets. This paper estimates the time-varying impact of the VIX index – a widely used measure of investors risk perceptions – on the dynamic correlation across international stock markets. Results show that risk perceptions significantly impact the dynamic correlation between the U.S. market and the leading stock markets of the world. Further, in 17 out of 20 international stock markets, risk perceptions Granger cause dynamic correlations. The impact of VIX is positive on the correlation of the U.S. market with European and Latin American markets. In contrast, the relationship of the U.S. market with all the Asian markets weakens (strengthens) as the VIX index rises (falls). In all cases, the time-varying parameter model shows that the impact of VIX on these correlations varies significantly across time.

Keywords: Global stock markets; Dynamic correlations; Risks and uncertainty; Time-varying parameter model (search for similar items in EconPapers)
JEL-codes: C22 E44 G11 G15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919301266

DOI: 10.1016/j.ribaf.2019.101169

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