Is VIX Still the Investor Fear Gauge? Evidence for the US and BRIC Markets

Neffelli, Marco; Resta, Marina

doi:10.2139/ssrn.3199634

Cited by 10 publications

(6 citation statements)

References 15 publications

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“…Our findings in the short and medium-terms which confirms the dominance of the VIX in transmitting high risk information is not shocking because the VIX is also regarded as the overall investor fear gauge [70][71][72]. us, the performance of the USA market has been a predictor of stock returns in other countries including emerging economies.…”

Section: Information Flows Between Emerging Market Volatilitysupporting

confidence: 70%

Quantifying Information Flows among Developed and Emerging Equity Markets

Boateng

Owusu

Adam

et al. 2022

Mathematical Problems in Engineering

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We rely on daily changes in implied volatility indices for the US stock market (VIX), developed markets excluding the US (VXEFA), stock markets in Brazil (VXEWZ), Russia (RVI), India (NIFVIX), China (VXFXI), and the overall emerging market volatility index (VXEEM) to examine the degree of information flows among the markets in the coronavirus pandemic. The study also employs the complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN) to decompose the data into intrinsic mode functions (IMFs). Subsequently, we cluster the IMFs based on their level of frequencies into short-, medium-, and long-term horizons. The analysis draws on the concept of Rényi transfer entropy (RTE) to enable an assessment of linear as well as non-linear and tail-dependence in the markets. The study reports significant information flows from BRIC volatility indices to the overall emerging market volatility index in the short-and medium-terms and vice versa. We also document a mixture of bi-directional and uni-directional flow of high risk information and low risk information emanating from emerging equity markets and from the developed markets. We find that the transmission of high risk information is largely dominated by the developed markets (VIX and VXEFA). In the midst of high degree of contagion, our findings reveal that investors can find minimal benefits by shielding against adverse shocks from the developed markets with a combination of stocks from India and other equities in the emerging markets in the short-term, within 1–15 days. For as low as 1–5 days, the empirical evidence indicates that a portfolio consisting of stocks from Russia and Brazil also offer immunity to shocks from the VXEFA. Our study makes an important empirical contribution to the study of market integration and contagion among emerging markets and developed markets in crisis periods.

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Section: Information Flows Between Emerging Market Volatilitysupporting

confidence: 70%

Quantifying Information Flows among Developed and Emerging Equity Markets

Boateng

Owusu

Adam

et al. 2022

Mathematical Problems in Engineering

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show abstract

“…In 2008, the global financial crisis broke out, and the economies of almost all countries were affected. Neffelli and Resta (2018) divide the financial crisis into three research stages, pre-crisis, during the crisis and post-crisis, and evidence that the VIX fear transmission mechanism mainly worked during the 2008 financial crisis and the post-crisis period. In September 2008, American International Group and Lehman Brothers collapsed, and the VIX soared to the highest point during the period of 2008:M10-2008:M11.…”

Section: Resultsmentioning

confidence: 99%

Can Gold Hedge the Risk of Fear Sentiments?

Liu

Chang

et al. 2022

Technological and Economic Development of Economy

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This paper investigates the interaction between fear sentiments and gold price (GP) by utilising the full-sample and sub-sample rolling-window bootstrap causality tests. It can be observed that GP can hedge the risk of fear sentiments in a certain period. The result supports the inter-temporal capital asset pricing model, which demonstrates that the increase in fear sentiments can promote the rise in gold prices. Due to excessive panic, fear sentiments also have negative effects on GP. In contrast, GP positively impacts fear sentiments, which manifests that market sentiment can be forecasted based on changes in the gold market. In addition, the negative influences from GP to fear sentiments indicate there are diversified assets that can be alternatives to gold. In the complicated international environment and volatile market sentiments, investors can benefit by optimising their asset portfolio. The governments can mitigate the adverse effects of large fluctuations in both markets by grasping the movement of gold and fear sentiments.

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“…Bagchi (2012), ise Hindistan özelinde portföy getirileri ve VIX arasındaki iliĢkinin pozitif olduğu bulgusuna rastlamıĢtır. ABD ve BRIC ülkeleri için yaptıkları analizde: Sarwar (2012), pay senedi getirileri ve VIX'in ters yönde güçlü asimetrik bir iliĢkisinin bulunduğunu; Neffelli & Resta (2018) ise 2008 finansal krizi döneminde VIX endeksinin yükseldiğini ve ilgili ülkelerin pay senedi piyasalarının VIX endeksinden etkilendiğini tespit etmiĢtirler. Tsai (2014), 5 geliĢmiĢ ülke (ABD, BirleĢik Krallık, Almanya, Fransa ve Japonya) için yaptığı analizde VIX korku endeksinin, ABD borsasının diğer ülkelerin borsaları üzerine yayılması ile önemli ölçüde iliĢkili olduğu bulgusuna ulaĢmıĢtır.…”

Section: Ampirik Literatürunclassified

Empirical Analysis of the Relationship of Stock Market, Exchange Rate, CDS Spreads and VIX Index in Turkey

PAZARCI

KAR

Kılıç

et al. 2022

Afyon Kocatepe Üniversitesi Sosyal Bilimler Dergisi

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With the acceleration of global integration processes, it is seen that the common point in the structure of the crises is, in general, the increases in the country's risk premium and the volatility in large open economies. The aim of this study is to examine the relationships between stock market index, exchange rate, risk premium (CDS) and fear index (VIX) in Turkey. For this, ARDL test was used. The period after February 2001, which is a structural turning point for the Turkish economy as well as for data availability, was used as the analysis period. Unlike the literature, both the CDS premium, which represents the country risk premium, and the VIX index, which reflects the foreign risk appetite and thus the foreign conjuncture, are used in the same model. In this way, it has been tried to shed light on the question of whether the effects on the stock market index are at the same level as a result of using the CDS and VIX indicators in the same model. According to the empirical findings, the exchange rate, CDS premium and VIX index affect the stock market index in Turkey. In Turkey, which is a country integrated with global markets, this result is considered within the expectations. In other words, changes in exchange rate, country risk premium and foreign risk appetite have an impact on stock market movements. Our results show that the CDS premium, which represents the country risk, is an important indicator for the BIST 100 compared to the VIX index, which represents the global risk appetite. In this case, it highlights the importance of the variables examined in the stock markets.

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Is VIX Still the Investor Fear Gauge? Evidence for the US and BRIC Markets

Cited by 10 publications

References 15 publications

Quantifying Information Flows among Developed and Emerging Equity Markets

Quantifying Information Flows among Developed and Emerging Equity Markets

Can Gold Hedge the Risk of Fear Sentiments?

Empirical Analysis of the Relationship of Stock Market, Exchange Rate, CDS Spreads and VIX Index in Turkey

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