Systemic Risk in Global Volatility Spillover Networks: Evidence from Option-Implied Volatility Indices

The Journal of Futures Markets, Forthcoming

35 Pages Posted: 14 Mar 2020

See all articles by Zihui Yang

Zihui Yang

Sun Yat Sen University - Lingnan College

Yinggang Zhou

Xiamen University - Department of Finance

Xin Cheng

Xiamen University - School of Economics

Date Written: November 20, 2019

Abstract

With option-implied volatility indices, we identify networks of global volatility spillovers and examine time-varying systemic risk across global financial markets. The US stock market is the center of the network and plays a dominant role in the spread of volatility spillover to other markets. The global systemic risks have intensified since the Federal Reserve exited from quantitative easing, hiked interest rate,and shrank its balance sheet. We further show that the US monetary tightening is an important catalyst for the intensifying global systemic risk. Our findings highlight the pernicious effects of monetary tightening after an era of cheap money.

Keywords: Network; Option-implied Volatility; Spillover; Systemic risk

JEL Classification: G15, E43, E44

Suggested Citation

Yang, Zihui and Zhou, Yinggang and cheng, xin, Systemic Risk in Global Volatility Spillover Networks: Evidence from Option-Implied Volatility Indices (November 20, 2019). The Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3540619

Zihui Yang

Sun Yat Sen University - Lingnan College ( email )

135 Xin Gang Xi Road
Guangzhou, Guangdong Province
China

Yinggang Zhou (Contact Author)

Xiamen University - Department of Finance ( email )

Xiamen, Fujian 361005
China

Xin Cheng

Xiamen University - School of Economics ( email )

China

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