Does Fear Spill Over?

Chen, C. Y.-H. (2014) Does Fear Spill Over? Asia-Pacific Journal of Financial Studies, 43(4), pp. 465-491. (doi:10.1111/ajfs.12055)

Chen, C. Y.-H. (2014) Does Fear Spill Over? Asia-Pacific Journal of Financial Studies, 43(4), pp. 465-491. (doi:10.1111/ajfs.12055)

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Abstract

This paper develops a new methodology for analyzing fear spillovers between four implied volatility indices (MVX in Canada, VXJ in Japan, VDAX in Germany and VIX in the United States) using a copula‐based bivariate Markov‐switching model. We consider a parameterization of the Markov‐switching model that allows for four possible states (consisting of combinations of either low or high expected volatilities). This model also combines selected copulas to describe the dependence pattern between different markets. The results show that dependencies, contagions and causalities between the four implied volatility index levels are strongly supported by the data in all copulas. From the dynamic and asymmetric analysis, the results indicate that the linkages between implied volatility indices are more pronounced when the indices rise.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Chen, Professor Cathy Yi-Hsuan
Authors: Chen, C. Y.-H.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Asia-Pacific Journal of Financial Studies
Publisher:Wiley
ISSN:2041-9945
ISSN (Online):2041-6156
Published Online:25 August 2014

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