Contemporaneous Spill‐Over Among Equity, Gold, and Exchange Rate Implied Volatility Indices

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AbstractThis paper examines the contemporaneous spill‐over effects among the implied volatility indices for stocks (VIX), gold (GVZ), and the exchange rate (EVZ). Using the “identification through heteroskedasticity” approach of Rigobon (2003), we decompose the contemporaneous relationships between these indices into causal relationships. We find strong unidirectional spill‐over from VIX to GVZ and EVZ (increases in VIX lead to increases in GVZ and EVZ); and bi‐directional spill‐over between GVZ and EVZ. The impulse responses of our structural VAR suggest that the traditional VAR seriously overestimates the impulse responses for GVZ and EVZ. These findings have important implications for portfolio and risk management.