Systemic risk in global volatility spillover networks: Evidence from option-implied volatility indices |
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Authors: | Zihui Yang Yinggang Zhou Xin Cheng |
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Affiliation: | 1. Department of Finance, Lingnan College, Sun Yat-Sen University, Guangzhou, China;2. Center for Macroeconomic Research & Department of Finance at School of Economics, and Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, China;3. Department of Finance, School of Economics, Xiamen University, Xiamen, China |
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Abstract: | With option-implied volatility indices, we identify networks of global volatility spillovers and examine time-varying systemic risk across global financial markets. The U.S. stock market is the center of the network and plays a dominant role in the spread of volatility spillover to other markets. The global systemic risks have intensified since the Federal Reserve exited from quantitative easing, hiked interest rate, and shrank its balance sheet. We further show that the U.S. monetary tightening is an important catalyst for the intensifying global systemic risk. Our findings highlight the pernicious effects of monetary tightening after an era of cheap money. |
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Keywords: | network option-implied volatility spillover systemic risk |
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