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Extreme spillovers of VIX fear index to international equity markets

Massaporn Cheuathonghua (), Chaiyuth Padungsaksawasdi (), Pattana Boonchoo () and Jittima Tongurai ()
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Massaporn Cheuathonghua: Thammasat University
Chaiyuth Padungsaksawasdi: Thammasat University
Pattana Boonchoo: Thammasat University
Jittima Tongurai: Kobe University

Financial Markets and Portfolio Management, 2019, vol. 33, issue 1, 1-38

Abstract: Abstract This study analyzes the impact of VIX spillovers on market activities during extreme market conditions in 42 international equity markets from 1998 to 2014. Specifically, tail cross-dependence suggests that a small change in VIX significantly influences global market activities during extreme market conditions. The impact of VIX is asymmetric, which is more pronounced in bearish, highly volatile, and low trading volume markets. Moreover, VIX spillovers exhibit a stronger impact on returns in developed markets and on volatility in emerging markets. In terms of geographical location, the impact of VIX spillovers is more pronounced on returns in Europe and on volatility in Latin America. These findings indicate that international investors can potentially benefit from international portfolio diversification and can serve as useful guidance to policymakers in designing appropriate policies.

Keywords: VIX; Tail distribution; Extreme market conditions; International equity market (search for similar items in EconPapers)
JEL-codes: F36 G15 F3 (search for similar items in EconPapers)
Date: 2019
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