Bahram Adrangi and Arjun Chatrath

Correspondence: Bahram Adrangi, adrangi@up.edu

University of Portland, USA

pdf (1623.52 Kb) | doi: https://doi.org/10.47260/bae/915

Abstract

This study examines the reaction of four major emerging equity markets of the Pacific Rim to the US oil market fear index (i.e., the Chicago Board of Trade Volatility Index, OVX). The OVX is designed to perform as a leading indicator of the volatility in crude oil markets. Our study examines the daily data for the period of 2014 through 2019. We excluded data for the extraordinary and transitory COVID-19 time period. We found that, during this period, there were four significant breaks in the data. Impulse responses from the structural vector autoregressive (SVAR) estimation show that in the second and third subperiods, from December 2016 through December 2018, the volatility of the equity markets of Hong Kong, Shanghai, Seoul, and Taiwan responded to structural shocks to the OVX. Nonlinear Granger causality tests confirmed these findings. This period is characterized by geopolitical crises, like nuclear proliferation on the Korean Peninsula and lingering complications surrounding the Brexit referendum.

Keywords:

  volatility, Pacific Rim Equity Markets, OVX, structural vector autoregression, GARCH Models, causality

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