Abstract
This study examines the reaction of the Standard and Poor’s Regional Bank Index (SPRB) to the U.S. equity market fear index (i.e., the Chicago Board of Trade Volatility Index [VIX]). The VIX is designed to perform as a leading indicator of the volatility in equity markets. However, practitioners observe many periods of divergence between the VIX and S&P 500. Our paper examines the daily data for the period of 2009 through 2019. We show that once the effects of consumer confidence and capacity utilization are accounted for, there is a negative association between the VIX and regional bank performance.
Highlights
This paper examines the response of the S&P Regional Bank Index (SPRB) to the implied volatility, the VIX
The quasi likelihood ratio test indicates that the explanatory variables, collectively, are significantly associated with the SPRB
Practitioners and academicians have been interested in the role the U.S fear index, VIX
Summary
This paper examines the response of the S&P Regional Bank Index (SPRB) to the implied volatility, the VIX. The VIX is often regarded as the fear index within the United. High readings of the VIX are typically negatively related to the performance of the market. Regional banks showed vulnerability during the financial crisis of 2008. Financial professionals and academics have long experimented with developing ways of measuring volatility in the financial markets (e.g., Mills and Markellos 2008).
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