Is VIX still the investor fear gauge? Evidence for the US and BRIC markets

TL;DR

This study examines the evolving relationship between the VIX and US/BRIC markets from 2007 to 2018, highlighting increased fear transmission during the 2008 crisis and differing post-crisis dynamics.

Contribution

It provides new insights into the structural breaks and changing influence of VIX on emerging and developed markets over a decade.

Findings

Increased fear transmission during the 2008 financial crisis.

Post-crisis, US market influence on VIX strengthened, while BRIC influence reverted to pre-crisis levels.

Frequent structural breaks in VIX indicate evolving market dynamics.

Abstract

We investigate the relationships of the VIX with US and BRIC markets. In detail, we pick up the analysis from the point left off by (Sarwar, 2012), and we focus on the period: Jan 2007 - Feb 2018, thus capturing the relations before, during and after the 2008 financial crisis. Results pinpoint frequent structural breaks in the VIX and suggest an enhancement around 2008 of the fear transmission in response to negative market moves; largely depending on overlaps in trading hours, this has become even stronger post-crisis for the US, while for BRIC countries has gone back towards pre-crisis levels.