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Dynamic connectedness between the U.S. financial market and Euro-Asian financial markets: Testing transmission of uncertainty through spatial regressions models

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  • Tissaoui, Kais
  • Zaghdoudi, Taha

Abstract

This study investigates fear transmission between the U.S. financial market and the Euro-Asian financial markets. Our spatial regression models show that the U.S. VIX index (Chicago Board Options Exchange implied volatility index CBOE VIX) and six European and Asian VIX indexes collectively have the explanatory ability for each other in static time conditions. Regarding a significant spatial spillover effect, dynamic interaction is also demonstrated between the U.S. market and European and Asian markets, implying a significant transmission of risk over time. Moreover, we highlight that the U.S. domestic risk is dominant in explaining the U.S. fear index relative to international risks (European and Asian fear indexes). On the contrary, we highlight that the U.S. fear index outperforms European domestic risks in explaining fear in European financial markets. However, this is not the case for Asian markets, where the results showed that all Asian fear index reactions are more affected by the Asian realised volatilities than by the U.S. fear index.

Suggested Citation

  • Tissaoui, Kais & Zaghdoudi, Taha, 2021. "Dynamic connectedness between the U.S. financial market and Euro-Asian financial markets: Testing transmission of uncertainty through spatial regressions models," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 481-492.
    • Handle: RePEc:eee:quaeco:v:81:y:2021:i:c:p:481-492
    DOI: 10.1016/j.qref.2020.10.020
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    More about this item

    Keywords

    Volatility risk indexes; Fear transmission; Spatial regressions models; Financial markets integration; Socio-economic space;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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