A Statistical Measure of Global Equity Market Risk

Daniel Felix Ahelegbey

No 194, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: We construct a new index of global equity market risk (EMR) using market interconnectedness and volatilities. We study the relationship between our EMR and the VIX over the last two decades. The EMR is shown to be a novel approach to measuring global market risk, and an alternative to the VIX. Using data of 20 major stock markets, including G10 economies, we find spikes in our EMR index during the dotcom bubble, the global financial crisis, the European sovereign debt crisis, and the novel coronavirus pandemic. The result shows that the global financial crisis and the Covid-19 induced crisis record the historic highest spikes in financial market risk, suggesting stronger evidence of contagion in both periods.

Keywords: COVID-19; Financial Crises; Financial Markets; Market Risk; Mahalanobis Distance; Volatility Index. (search for similar items in EconPapers)
JEL-codes: C11 C15 C51 C52 C55 C58 G01 G12 (search for similar items in EconPapers)
Pages: 8
Date: 2020-11
New Economics Papers: this item is included in nep-cwa, nep-fmk, nep-ore and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:demwp0194

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