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How much happiness can we find in the U.S. fear Index?

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  • Qadan, Mahmoud
  • Aharon, David Y.

Abstract

Using high-frequency data for the S&P 500, we decompose the so-called fear index, the VIX, into two components: conditional variance of stock returns and variance risk premium, which proxies for risk aversion. We provide evidence about the relationship between investor mood and the implied risk aversion around joyful occasions such as holidays and other occasions that might result in negative moods such as the disruption of sleep resulting from the move to daylight savings time. We find that implied risk aversion shows a U-shape around holidays and a ∩-shape when investors are in a negative mood. Our results validate the existence of changes in the price of risk around non-economic events, and suggest that variance risk premium can be a good reflection of mood.

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  • Qadan, Mahmoud & Aharon, David Y., 2019. "How much happiness can we find in the U.S. fear Index?," Finance Research Letters, Elsevier, vol. 30(C), pages 246-258.
    • Handle: RePEc:eee:finlet:v:30:y:2019:i:c:p:246-258
    DOI: 10.1016/j.frl.2018.10.001
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    Cited by:

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    5. Plastun, Alex & Bouri, Elie & Havrylina, Ahniia & Ji, Qiang, 2022. "Calendar anomalies in passion investments: Price patterns and profit opportunities," Research in International Business and Finance, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Financial markets; Mood; Behavioral finance; Holiday effect; Risk aversion; Variance risk premium;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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