Volatility Spillover from the Fear Index to Developed and Emerging Markets

Badshah, I

doi:10.1080/1540496X.2016.1220294

Badshah, I

Abstract

This paper examines cross-market volatility linkages among the fear index (VIX), the developed-market index (VXEFA), and the emerging-market index (VXEEM). Analysis on the first moments of volatilities reveals that the fear index has a leading role and has information content for VXEFA and VXEEM. A shock to the fear index spillovers to VXEFA and VXEEM and contributes 57.07% and 63.77% to their shocks, respectively. Further analysis on the second moments of volatilities confirms that the volatility indices are highly dynamically correlated while the fear index drives the correlation dynamics with the VXEEM. Correlations increase in turbulent periods and decrease in tranquil periods.

Keywords

Emerging markets; implied volatility spillovers; VIX; VXEEM; VXEFA

Date

April 16, 2015

Source

Emerging Markets Finance and Trade. doi: 10.1080/1540496X.2016.1220294

Publisher

Taylor & Francis

DOI

10.1080/1540496X.2016.1220294

Rights Statement

Copyright © 2016 Taylor & Francis. This is a preprint of an article whose final and definitive form has been published in the Emerging Markets Finance and Trade and is available online at: www.tandfonline.com with the open URL of your article (see Publisher’s Version).