Risk Aversion Connectedness in Developed and Emerging Equity Markets before and after the COVID-19 Pandemic

Fassas, A. P. (2020). Risk aversion connectedness in developed and emerging equity markets before and after the COVID-19 pandemic. Heliyon, 6(12), e05715.

8 Pages Posted: 2 Mar 2021

See all articles by Athanasios Fassas

Athanasios Fassas

University of Thessaly; Hellenic Open University

Date Written: December 9, 2020

Abstract

This study investigates the dynamic connectedness across the variance risk premium in international developed and emerging equity markets based on a Bayesian time-varying parameter vector autoregressive methodology.

The empirical results indicate that the total spillover index is on average 65.6%, indicating a high, albeit declining, level of interconnectedness across the investor sentiment in the three markets under review until early 2020. Following the COVID-19 outbreak though, the total investors' risk aversion connectedness – as expected – strengthens, but more importantly, its dynamics alter, indicating that the risk aversion of emerging markets is an important contributor to the connectedness of international markets.

Keywords: variance risk premium; Diebold and Yilmaz; spillovers; emerging markets; risk aversion; TVP-VAR; COVID-19

JEL Classification: C32, G10, G13, G15, G41

Suggested Citation

Fassas, Athanasios, Risk Aversion Connectedness in Developed and Emerging Equity Markets before and after the COVID-19 Pandemic (December 9, 2020). Fassas, A. P. (2020). Risk aversion connectedness in developed and emerging equity markets before and after the COVID-19 pandemic. Heliyon, 6(12), e05715., Available at SSRN: https://ssrn.com/abstract=3793600

Athanasios Fassas (Contact Author)

University of Thessaly ( email )

Argonafton & Filellinon
38221 Volos, 41110
United States

Hellenic Open University ( email )

Parodos Aristotelous 18
Patra, 26335
Greece

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