Do Global Markets Imply Common Fear?

Rivista Bancaria Minerva Bancaria

10 Pages Posted: 12 Feb 2021

See all articles by Rosa Cocozza

Rosa Cocozza

University of Naples Federico II - Faculty of Economics

Domenico Curcio

University of Naples Federico II; Arcelli Centre for Monetary and Financial Studies (CASMEF)

Antonio Pacifico

affiliation not provided to SSRN

Date Written: january 2020

Abstract

!is research investigates the relations of the US VIX and the European VSTOXX, on the one hand, and their main determinants, on the other hand. In line with prior studies, US and European stock and volatility markets exhibit a contemporaneous negative relationship. Furthermore, the increase of VIX and VSTOXX associated with a fall in stock prices is larger than the decrease that the two indices experience when stock prices rise. During the great financial crisis, the negative relation between volatility indices and stock market indices weakens for both financial markets; the asymmetric reaction to changes in stock market returns becomes stronger for the VSTOXX index and decreases for the VIX.

!e analysis of the dynamic interaction between volatility indices and main financial and macroeconomic variables based on a Structural Panel Bayesian VAR shows that the US monetary policy rate is an important driver of both the US and European volatility indices’ behavior, thus hugely affecting not only the domestic "nancial market, but also the European one. Moreover, the presence of consistent co-movements and interdependencies among volatility indices prove that international spillovers are mainly linked via financial markets.

Keywords: Volatility Indexes, Stock Market Indexes, Political Economy, Interest Rates

JEL Classification: E44, F30, F44

Suggested Citation

Cocozza, Rosa and Curcio, Domenico and Pacifico, Antonio, Do Global Markets Imply Common Fear? (january 2020). Rivista Bancaria Minerva Bancaria, Available at SSRN: https://ssrn.com/abstract=3747907

Rosa Cocozza (Contact Author)

University of Naples Federico II - Faculty of Economics ( email )

Via Cintia Monte S. Angelo
Napoli, 80126
Italy
+39/81675083 (Phone)

HOME PAGE: http://www.docenti.unina.it/rosa.cocozza

Domenico Curcio

University of Naples Federico II ( email )

Via Cintia, Monte S. Angelo
Naples, Naples 80126
Italy
+393402651322 (Phone)

Arcelli Centre for Monetary and Financial Studies (CASMEF) ( email )

Viale Romania 32
Rome, 00197
Italy

Antonio Pacifico

affiliation not provided to SSRN

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