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The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon

We explore the use of implied volatility indices as a tool for estimate changes in the synchronization of stock markets. Specifically, we assess the implied stock market’s volatility indices’ predictive power on synchronizing global equity indices returns. We built the correlation network of 26 stoc...

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Detalles Bibliográficos
Autores principales: Magner, Nicolás, Lavin, Jaime F., Valle, Mauricio, Hardy, Nicolás
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Public Library of Science 2021
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8136682/
https://www.ncbi.nlm.nih.gov/pubmed/34014976
http://dx.doi.org/10.1371/journal.pone.0250846
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author Magner, Nicolás
Lavin, Jaime F.
Valle, Mauricio
Hardy, Nicolás
author_facet Magner, Nicolás
Lavin, Jaime F.
Valle, Mauricio
Hardy, Nicolás
author_sort Magner, Nicolás
collection PubMed
description We explore the use of implied volatility indices as a tool for estimate changes in the synchronization of stock markets. Specifically, we assess the implied stock market’s volatility indices’ predictive power on synchronizing global equity indices returns. We built the correlation network of 26 stock indices and implemented in-sample and out-of-sample tests to evaluate the predictive power of VIX, VSTOXX, and VXJ implied volatility indices. To measure markets’ synchronization, we use the Minimum Spanning Tree length and the length of the Planar Maximally Filtered Graph. Our results indicate a high predictive power of all the volatility indices, both individually and together, though the VIX predominates over the evaluated options. We find that an increase in the markets’ volatility expectations, captured by the implied volatility indices, is a good Granger predictor of an increase in the synchronization of returns in the following month. Estimating, monitoring, and predicting returns’ synchronization is essential for investment decision-making, especially for diversification strategies and regulating financial systems.
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spelling pubmed-81366822021-06-02 The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon Magner, Nicolás Lavin, Jaime F. Valle, Mauricio Hardy, Nicolás PLoS One Research Article We explore the use of implied volatility indices as a tool for estimate changes in the synchronization of stock markets. Specifically, we assess the implied stock market’s volatility indices’ predictive power on synchronizing global equity indices returns. We built the correlation network of 26 stock indices and implemented in-sample and out-of-sample tests to evaluate the predictive power of VIX, VSTOXX, and VXJ implied volatility indices. To measure markets’ synchronization, we use the Minimum Spanning Tree length and the length of the Planar Maximally Filtered Graph. Our results indicate a high predictive power of all the volatility indices, both individually and together, though the VIX predominates over the evaluated options. We find that an increase in the markets’ volatility expectations, captured by the implied volatility indices, is a good Granger predictor of an increase in the synchronization of returns in the following month. Estimating, monitoring, and predicting returns’ synchronization is essential for investment decision-making, especially for diversification strategies and regulating financial systems. Public Library of Science 2021-05-20 /pmc/articles/PMC8136682/ /pubmed/34014976 http://dx.doi.org/10.1371/journal.pone.0250846 Text en © 2021 Magner et al https://creativecommons.org/licenses/by/4.0/This is an open access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
spellingShingle Research Article
Magner, Nicolás
Lavin, Jaime F.
Valle, Mauricio
Hardy, Nicolás
The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon
title The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon
title_full The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon
title_fullStr The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon
title_full_unstemmed The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon
title_short The predictive power of stock market’s expectations volatility: A financial synchronization phenomenon
title_sort predictive power of stock market’s expectations volatility: a financial synchronization phenomenon
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8136682/
https://www.ncbi.nlm.nih.gov/pubmed/34014976
http://dx.doi.org/10.1371/journal.pone.0250846
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