Dynamic Responses of Major Equity Markets to the US Fear Index

Bahram Adrangi, Arjun Chatrath, Joseph Macri and Kambiz Raffiee
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Bahram Adrangi: W.E. Nelson Professor of Financial Economics, University of Portland, 5000 N. Willamette Blvd., Portland, OR 97203, USA
Arjun Chatrath: Shulte Professor of Finance, Pamplin School of Business, University of Portland, 5000 N. Willamette Blvd., Portland, OR 97203, USA
Joseph Macri: Department of Economics Macquarie, University North Ryde, Sydney, NSW 2109, Australia
Kambiz Raffiee: Foundation Professor of Economics, College of Business, University of Nevada, Reno, NV 89557, USA

JRFM, 2019, vol. 12, issue 4, 1-23

Abstract: This study examines the reaction of four major equity markets of the world to the US equity market fear index, i.e., the Chicago Board of Trade Volatility Index (VIX). The VIX is designed to perform as a leading indicator of the volatility in equity markets. Our paper examines the daily data for the period of 2013 through 2018. We find that during this period there were three significant breaks in the data. Impulse responses from the structural vector autoregressive model estimation show that, in the first and second subperiods that cover from 6/2013 through 5/2016, equity market volatility in the US, UK, France, and Germany responded to structural shocks to the VIX. Nonlinear Granger causality tests confirm these findings. However, in the post Brexit-vote era, equity indices neither react to VIX structural shocks nor are caused by these shocks.

Keywords: volatility; international equity markets; structural vector autoregression; GARCH models; causality (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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