In this article, we investigate the role of US macroeconomic variables as leading indicators of regime shifts in the VIX index using a regime-switching approach. We find that there are three distinct regimes in the VIX index during the 1990 to 2010 period: tranquil regime with low volatility, turmoil regime with high volatility and crisis regime with extremely high volatility. We also show that the regime shift from the tranquil to the turmoil regime is significantly predicted by lower term spreads.
Highlights
We study the relationship between oil and the US stock market.
We compare the relationship before and after the onset of the Covid-19 crisis.
To do so, we compute upside and downside correlations between the two markets.
We find that both upside and downside correlations increased after the crisis.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.