Asymmetric and high-order risk transmission across VIX and Chinese futures markets

Abstract

Due to the increasing attention to the linkages of financial markets in the context of ongoing economic globalization and financial integration, we delve into the transmission of risk across the Chicago Board Options Exchange Volatility Index (VIX) and volatility estimators of Chinese futures markets, where the VIX serves as an essential indicator of global financial market instability. By conducting tests on structural breaks in different order moments and risk contagions in different order co-moments via the regime-switching skew-normal model, we discover the existence of asymmetric volatility contagions through the correlation channel during the mid-2015 Chinese stock market crash and through the co-skewness channel during the first quarter of 2016. Interestingly, the risk contagion among the VIX and returns of the four futures primarily occurs via the co-skewness channel, rather than the commonly studied correlation channel. The joint structural break tests further reveal significant regime shifts in both first- and third-order moments for the VIX and negative realized semivariances of the four futures.