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Extreme dependence and spillovers between uncertainty indices and stock markets: Does the US market play a major role?

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  • Mensi, Walid
  • Kamal, Md Rajib
  • Vinh Vo, Xuan
  • Hoon Kang, Sang

Abstract

This study investigates the spillovers and connectedness between uncertainty indices of oil gold, and stock (VIX), the economic policy uncertainty (EPU) and international stock markets (US, EU, UK, Japan, China, and Vietnam) under bearish, normal, and bullish market conditions. We employ a cross-quantilogram and quantile connectedness approach to investigate the contemporaneous linkages and asymmetries among stock markets under various financial market uncertainty. Using the cross-quantilogram approach, we find strong cross-quantilogram dependencies from the US stock market to other markets, even after controlling for the uncertainties. We find greater spillovers under volatile market conditions—bearish and bullish—than under stable market conditions using the quantile connectedness approach. The financial volatility or uncertainty indices are net transmitter (receiver) of spillover in the stock markets, especially in the bearish and tranquil (bullish) market status. Furthermore, all markets and the uncertainty indices except the US, Europe, and the UK are net receivers of spillovers in the lower quantile, while VIX uncertainty index shifts to being a net transmitter of spillovers in the lower and median quantiles. In the upper quantile, Japanese stock market and the uncertainty indices are net receivers of spillovers. VIX is strongly linked to the US (Chinese) market in tranquil (bullish) market conditions. In addition, the maximum amount of spillovers was attained during the beginning of 2020, coinciding with the onset of the COVID-19 pandemic's first wave.

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  • Mensi, Walid & Kamal, Md Rajib & Vinh Vo, Xuan & Hoon Kang, Sang, 2023. "Extreme dependence and spillovers between uncertainty indices and stock markets: Does the US market play a major role?," The North American Journal of Economics and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s1062940823000931
    DOI: 10.1016/j.najef.2023.101970
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    References listed on IDEAS

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    2. Stilianos Fountas & Dimitra Kontana & Paraskevi Tzika, 2024. "Uncertainty and financial asset return spillovers: are they related? Empirical evidence from three continents," Empirical Economics, Springer, vol. 67(5), pages 1891-1918, November.
    3. Lu Yang, 2025. "From Economic Policy Uncertainty to Implied Market Volatility: Nothing to Fear?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(2), pages 143-157, February.
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    5. Cui, Jinxin & Maghyereh, Aktham, 2024. "Unveiling interconnectedness: Exploring higher-order moments among energy, precious metals, industrial metals, and agricultural commodities in the context of geopolitical risks and systemic stress," Journal of Commodity Markets, Elsevier, vol. 33(C).
    6. Lü, Zheng & Ozcelebi, Oguzhan & Yoon, Seong-Min, 2025. "Impact of central bank digital currency uncertainty on international financial markets," Research in International Business and Finance, Elsevier, vol. 73(PA).
    7. Bouri, Elie & Gök, Remzi & Gemi̇ci̇, Eray & Kara, Erkan, 2024. "Do geopolitical risk, economic policy uncertainty, and oil implied volatility drive assets across quantiles and time-horizons?," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 137-154.
    8. Abdollahi, Hooman & Fjesme, Sturla L. & Sirnes, Espen, 2024. "Measuring market volatility connectedness to media sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    9. Li, Zhe & Shen, Jiashuang & Xiao, Weilin, 2024. "Volatility risk premium, good volatility and bad volatility: Evidence from SSE 50 ETF options," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).

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