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.
Highlights
Concerns about monitoring financial market turbulence and risk have intensified in recent times, especially in the heat of the ongoing global pandemic
We study the relationship between our equity market risk (EMR) index and the VIX by using daily prices of 20 major stock market from Bloomberg, covering January 2000 to June 2020
We study the relationship between our EMR index and the VIX by using data from the Bloomberg database
Summary
Concerns about monitoring financial market turbulence and risk have intensified in recent times, especially in the heat of the ongoing global pandemic. The reaction of investors and financial markets since the first quarter of 2020, following the spread of the novel coronavirus (COVID-19) from Wuhan, in China to a global pandemic, has heightened the need to find ways of tracking the effect of the COVID-19 induced crisis on financial markets. This paper proposes the construction of a new index of equity market risk (EMR) using market interconnectedness and volatilities. The latter is considered a measure of market uncertainty or fear, which can be proxied via standard deviation of returns. The interconnectedness among markets provides the channels for spillover propagation.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
