NetVIX - A Network Volatility Index of Financial Markets

24 Pages Posted: 5 Oct 2020

See all articles by Daniel Felix Ahelegbey

Daniel Felix Ahelegbey

University of Pavia, Department of Economics and Management; Boston University, Department of Mathematics & Statistics

Paolo Giudici

University of Pavia

Date Written: September 16, 2020

Abstract

We construct a network volatility index (NetVIX) via market interconnectedness and volatilities to measure global market turbulence. The NetVIX multiplicatively decomposes into an average volatility and a network amplifier index. It also additively decomposes into marginal volatility indices for measuring individual contribution to global turmoil. We apply our measure to study the relationship between the interconnectedness among 20 major stock markets and global market risks over the last two decades. The NetVIX is shown to be a novel approach to measuring global market risk, and an alternative to the VIX. The result shows that during crisis periods, particularly the tech-bubble, sub-prime, and COVID-19 pandemic, the interconnectedness of the markets amplifies average market risk more than 700 percent to cause a global meltdown. We find evidence that the highest risk-contributing markets to global meltdown are the US, Brazil, Hong Kong, France, and Germany.

Keywords: Centrality, COVID-19, Financial Crises, NetVIX, Turbulence, VAR, VIX

JEL Classification: C11, C15, C51, C52, C55, C58, G01, G12

Suggested Citation

Ahelegbey, Daniel Felix and Giudici, Paolo, NetVIX - A Network Volatility Index of Financial Markets (September 16, 2020). Available at SSRN: https://ssrn.com/abstract=3693806 or http://dx.doi.org/10.2139/ssrn.3693806

Daniel Felix Ahelegbey (Contact Author)

University of Pavia, Department of Economics and Management ( email )

Via San Felice 7
Pavia, Lombardia 27100
Italy
+393888931128 (Phone)

HOME PAGE: http://sites.google.com/site/danielfelixahey/home

Boston University, Department of Mathematics & Statistics ( email )

111 Cummington Mall
Boston, MA 02215
United States

Paolo Giudici

University of Pavia ( email )

Via San Felice 7
27100 Pavia, 27100
Italy

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