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A Statistical Measure of Global Equity Market Risk

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  • Daniel Felix Ahelegbey

    (University of Pavia)

Abstract

We construct a new index of global equity market risk (EMR) using market interconnectedness and volatilities. We study the relationship between our EMR and the VIX over the last two decades. The EMR is shown to be a novel approach to measuring global market risk, and an alternative to the VIX. Using data of 20 major stock markets, including G10 economies, we find spikes in our EMR index during the dotcom bubble, the global financial crisis, the European sovereign debt crisis, and the novel coronavirus pandemic. The result shows that the global financial crisis and the Covid-19 induced crisis record the historic highest spikes in financial market risk, suggesting stronger evidence of contagion in both periods.

Suggested Citation

  • Daniel Felix Ahelegbey, 2020. "A Statistical Measure of Global Equity Market Risk," DEM Working Papers Series 194, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0194
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    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0194.pdf
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    More about this item

    Keywords

    COVID-19; Financial Crises; Financial Markets; Market Risk; Mahalanobis Distance; Volatility Index.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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