Fear and the Fama-French Factors

Durand, Robert B.; Lim, Dominic; Zumwalt, J. Kenton

doi:10.2139/ssrn.965587

Cited by 17 publications

(15 citation statements)

References 41 publications

(82 reference statements)

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“…These studies almost unanimously find a substantial negative contemporaneous association between the VIX and US equity returns. In a related study, Durand et al (2011) show that the market risk and value premiums in the Fama and French (1993) three-factor model respond to changes in the VIX.…”

Section: Review Of the Relevant Literaturementioning

confidence: 96%

Dynamic Responses of Major Equity Markets to the US Fear Index

Adrangi

Chatrath

Macri

et al. 2019

JRFM

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This study examines the reaction of four major equity markets of the world to the US equity market fear index, i.e., the Chicago Board of Trade Volatility Index (VIX). The VIX is designed to perform as a leading indicator of the volatility in equity markets. Our paper examines the daily data for the period of 2013 through 2018. We find that during this period there were three significant breaks in the data. Impulse responses from the structural vector autoregressive model estimation show that, in the first and second subperiods that cover from 6/2013 through 5/2016, equity market volatility in the US, UK, France, and Germany responded to structural shocks to the VIX. Nonlinear Granger causality tests confirm these findings. However, in the post Brexit-vote era, equity indices neither react to VIX structural shocks nor are caused by these shocks.

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Section: Review Of the Relevant Literaturementioning

confidence: 96%

Dynamic Responses of Major Equity Markets to the US Fear Index

Adrangi

Chatrath

Macri

et al. 2019

JRFM

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“…To explore this possibility, we estimate cash regressions (but do not reproduce them in a table) where we add the VIX at the beginning of the quarter and the change in the VIX during the quarter as forward-looking measures of economic uncertainty. The VIX is often used as a measure of risk-aversion and is sometimes viewed as an investor fear gauge (see Durand, Lim, and Zumwalt (2007)). The addition of the VIX variables does not change our conclusions.…”

Section: It Follows Frommentioning

confidence: 99%

Financial Policies and the Financial Crisis: How Important was the Systemic Credit Contraction for Industrial Corporations?

Kahle

Stulz

2010

SSRN Journal

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We thank Christian Leuz, Cathy Schrand, Berk Sensoy, and Mike Weisbach for useful discussions, and Matt Wynter for excellent research assistance. We are especially indebted to Harry DeAngelo for discussions and detailed comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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“…If traders are consistently trading in response to market noise and overreaction, they could significantly increase the daily volatility of the market. This volatility can lead to investor fear and a subsequent negative impact on the returns of several equity-based securities (Durand, Lim, & Zumwalt, 2007). However, if research in this field continues to document overreaction, and develop trading strategies that exploit this behavioral bias, then excess market volatility may be reduced.…”

Section: Resultsmentioning

confidence: 99%

Overreaction in Trading

Morscheck

2019

IJFBS

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Using intraday trading data during the 2008 financial crisis, from the Standard and Poor’s Depository Receipt (SPDR) market, we test for evidence of the informational advantage of traders. In addition, we examine the effect of pricing error on trade price. If traders are rational, and have accurate information, they will only purchase an asset at a premium (discount) if they have reason to believe that the fundamental value of that asset will increase (decrease). Our results show that the trading price of the SPDR does not significantly predict the movement of underlying asset values. This finding is consistent with traders overreacting to disparities between price and underlying value during the financial crisis.

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Fear and the Fama-French Factors

Cited by 17 publications

References 41 publications

Dynamic Responses of Major Equity Markets to the US Fear Index

Dynamic Responses of Major Equity Markets to the US Fear Index

Financial Policies and the Financial Crisis: How Important was the Systemic Credit Contraction for Industrial Corporations?

Overreaction in Trading

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