An Empirical Study of Volatility Spillover Worldwide

Olivares, Antonio Fernandez Del Castillo; Kumiega, Andrew; Sterijevski, Greg; Vliet, Ben Van

doi:10.1002/wilm.10675

Cited by 3 publications

(2 citation statements)

References 14 publications

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“…In common, the dynamics of information flows in both the short-and medium-terms underscore the superiority of the VIX in transmitting contagion to emerging markets. e superiority of the information content of the VIX has been well documented in the extant literature [65,[67][68][69]. e coronavirus which has affected cross-border movements of goods and capital significantly affecting trade and since emerging markets are tied to USA mainly through underlying trade and investments, it creates the conditions for shock transmission among financial markets.…”

Section: Information Flows Between Emerging Market Volatilitymentioning

confidence: 99%

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 Volatilitymentioning

confidence: 99%

Quantifying Information Flows among Developed and Emerging Equity Markets

Boateng

Owusu

Adam

et al. 2022

Mathematical Problems in Engineering

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“…However, studies that examine implied volatility linkages among global financial markets are rare. An attempt by Del Castillo Olivares et al (2018) that investigates implied volatility linkages with twentynine volatility indices ignores asymmetric relationships between financial markets. Furthermore, it has been well established in the literature that noise in time series can sometimes be more evident than the effect of the signal, thereby confounding the outcomes (see, Dimpfl & Peter 2014).…”

Section: Introductionmentioning

confidence: 99%

Multifrequency-based non-linear approach to analyzing implied volatility transmission across global financial markets

Boateng

Asafo−Adjei

Gatsi

et al. 2022

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Research background: The contagious impact of the COVID-19 pandemic has heightened financial market's volatility, nonlinearity, asymmetric and nonstationary dynamics. Hence, the existing relationship among financial assets may have been altered. Moreover, the level of investor risk aversion and market opportunities could also alter in the pandemic. Predictably, investors in the heat of the moment are concerned about minimizing losses. In order to determine the level of hedge risks between implied volatilities in the COVID-19 pandemic through information flow, it is required to take into account the increased vagueness of economic projections as well as the increased uncertainty in asset values as a result of the pandemic. Purpose of the article: The study aims to examine the transmission of information between the VIX-implied volatility index for S&P 500 and fifteen other implied volatility indices in the COVID-19 pandemic. Methods: We relied on daily changes in the VIX and fifteen other implied volatility indices from commodities, currencies, and stocks. The study employed the improved complete ensemble empirical mode decomposition with adaptive noise which is in line with the heterogeneous expectations of market participants to denoise the data and extract intrinsic mode functions (IMFs). Subsequently, we clustered the IMFs based on common features into high, low, and medium frequencies. The analysis was carried out using Rényi transfer entropy (RTE), which allowed for the evaluation of both linear and non-linear, as well as varied distributions of the market dynamics. Findings & value added: Findings from the RTE revealed a bi-directional flow of negative information amid the VIX and each of the volatility indices, particularly in the long term. We found this behavior of the markets to be consistent at varying levels of investors' risk aversion. The findings help investors with their portfolio strategies in the time of the pandemic, which has resulted in fluctuating levels of risk aversion. Our findings characterize global financial markets to be ?non-linear heterogeneous evolutionary systems?. The results also lend support to the emerging delayed volatility of market competitiveness and external shocks hypothesis.

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