Dynamic Interactions Between Market Volatility Indices: Case US
DOI:
https://doi.org/10.21919/remef.v21i2.1047Keywords:
financial crisis, market indices, volatility, financial assets.Abstract
This paper examines the volatility of market indices, which appears to have had a major impact during the period 2015-2022. This market volatility is shown through employing methods: ordinary least squares (OLS) and dynamic conditional correlation generalized autoregressive conditionally heteroskedastic DCC-GARCH. Our principal finding indicated that the volatility index will create disturbances in the financial market through the combining of indices VIX, VXV, VIX futures term structure, and SP 500. These associations revealed a high degree of correlation, indicating that the intensity of risk aversion increases when near-term uncertainty outweighs longer-term risks. Based on these findings, a comprehensive review of the associations is as follows: It is imperative to discern between temporary volatility spikes and systemic risks. Furthermore, it is essential to identify stress regimes versus normal risk. Hence, market expectations of volatility over time must be gauged, and the timing of hedging or trading strategies must be improved.
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