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Investors’ risk perceptions in the US and global stock market integration

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  • Marfatia, Hardik A.

Abstract

Investors’ risk perceptions have significant implications for international stock markets. This paper estimates the time-varying impact of the VIX index – a widely used measure of investors risk perceptions – on the dynamic correlation across international stock markets. Results show that risk perceptions significantly impact the dynamic correlation between the U.S. market and the leading stock markets of the world. Further, in 17 out of 20 international stock markets, risk perceptions Granger cause dynamic correlations. The impact of VIX is positive on the correlation of the U.S. market with European and Latin American markets. In contrast, the relationship of the U.S. market with all the Asian markets weakens (strengthens) as the VIX index rises (falls). In all cases, the time-varying parameter model shows that the impact of VIX on these correlations varies significantly across time.

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  • Marfatia, Hardik A., 2020. "Investors’ risk perceptions in the US and global stock market integration," Research in International Business and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919301266
    DOI: 10.1016/j.ribaf.2019.101169
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    More about this item

    Keywords

    Global stock markets; Dynamic correlations; Risks and uncertainty; Time-varying parameter model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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