How fearful are Commodities and US stocks in response to Global fear? Persistence and Cointegration analyses

Olaoluwa Yaya, Luis Gil-Alana, Oluwasegun Adekoya () and Xuan Vinh Vo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper deals with the analysis of long-run relationships of fear indices for US stocks, commodities, and the energy sector with global fear indices for stocks and oil. Departing from the classical literature, fractional integration, and cointegration techniques are used to determine the degree of persistence in the long-run relationship of the indices. Our results are threefold. We first established a fractional cointegrating relationship between each of the global and oil fear indices and other fear indices. However, the long-run relationship tends to be weak for the technology stocks. In addition, the cointegrating framework reveals a nonstationary mean-reverting behaviour in the long-run relationship, implying that the effect of shocks from financial, economic, or other exogenous sources will be temporary though with long-lasting effects. These findings have crucial policy inferences for portfolio managers concerning investment decisions.

Keywords: CBOE fear gauge; mean reversion; fractional integration; fractional cointegration; technology stocks (search for similar items in EconPapers)
JEL-codes: C22 G01 G15 (search for similar items in EconPapers)
Date: 2021-06-04
New Economics Papers: this item is included in nep-cwa and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Journal Article: How fearful are commodities and US stocks in response to global fear? Persistence and cointegration analyses (2021)
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