Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/161466
Authors: 
Hattori, Masazumi
Shim, Ilhyock
Sugihara, Yoshihiko
Year of Publication: 
2016
Series/Report no.: 
ADBI Working Paper Series 590
Abstract: 
Using variance risk premiums (VRPs) nonparametrically calculated from equity markets in selected major developed economies and emerging market economies (EMEs) over 2007 - 2015, we document the correlation of VRPs across the markets and examine whether equity fund flows work as a path through which VRPs spill over globally. First, we find that VRPs tend to spike up during market turmoil such as the peak of the global financial crisis and the European debt crisis. Second, we find that all cross-equity market correlations of VRPs are positive, and that some economy pairs exhibit high levels of the correlation. In terms of volatility contagion, we find that an increase in VRPs in the United States significantly reduces equity fund flows to other developed economies, but not those to EMEs, in the period after the global financial crisis. Two-stage least squares estimation results show that equity fund flows are a channel for spillover of VRPs in the United States to VRPs in other developed economies.
Subjects: 
equity market
equity fund flow
cross-equity market
spillover effects
global financial crisis
financial market volatility
variance risk premium
emerging market economies
eurozone
interest rate
nonparametric analysis
ordinary least squares
OLS
univariate
market correlation
regression analysis
JEL: 
F32
G12
G15
G23
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/
Document Type: 
Working Paper

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