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An Investigation of the Predictive Speed of the UK VIX for the Downside Risk in European Equity Markets

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  • Chikashi Tsuji

Abstract

Using the time-series data of UK volatility index (VIX) and other four European equity indices of France, Italy, Spain, and Portugal, and applying quantile regressions, this study investigates the predictive power and predictive speed of the UK VIX for the future sharp price drops in other four European equity markets. As a result, our empirical examinations derive the following findings. (1) First, we clarify that the increases of the UK VIX have statistically significant predictive power for the downside risk in other four European equity markets. (2) Second, our empirical results reveal that the two to four days before, the changes in the UK VIX can forecast the downside risk in other four European equity markets.

Suggested Citation

  • Chikashi Tsuji, 2018. "An Investigation of the Predictive Speed of the UK VIX for the Downside Risk in European Equity Markets," International Business Research, Canadian Center of Science and Education, vol. 11(12), pages 18-25, December.
    • Handle: RePEc:ibn:ibrjnl:v:11:y:2018:i:12:p:18-25
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    References listed on IDEAS

    as
    1. Chuliá, Helena & Fernández, Julián & Uribe, Jorge M., 2018. "Currency downside risk, liquidity, and financial stability," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 83-102.
    2. Chikashi Tsuji, 2017. "Does the CBOE Volatility Index Predict Downside Risk at the Tokyo Stock Exchange?," International Business Research, Canadian Center of Science and Education, vol. 10(3), pages 1-7, March.
    3. Chikashi Tsuji, 2016. "Does the fear gauge predict downside risk more accurately than econometric models? Evidence from the US stock market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1220711-122, December.
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    More about this item

    Keywords

    European equity markets; downside risk; quantile regression; VIX;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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