CBOE volatility index (VIX) and corporate market leverage

Giang Thi Huong Vuong, Manh Huu Nguyen and Wing-Keung Wong

Cogent Economics & Finance, 2022, vol. 10, issue 1, 2111798

Abstract: Our paper investigates the nexus between the CBOE Volatility Index (VIX) and the market leverage of firms listed on the US stock market. Analyzing the yearly database of non-financial US firms from 2000 to 2019, we find that an increase in the VIX index has a positive impact on the leverage of the corporate market. We also find robust evidence that the US-listed firms tend to use more market leverage in the future year when the VIX index ascends. Furthermore, we find a more prominent positive effect of the change in the VIX index on the long-term market leverage than the short-term market leverage. Different approaches for the panel models firmly support our findings. In addition, our research suggests that the implied volatility index is a good proxy to measure investors’ fear of securities investment and provides a good foundation for making the capital structure decisions for the firms listed on the US stock market.

Date: 2022
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DOI: 10.1080/23322039.2022.2111798

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