Extreme Spillover Effects of Volatility Indices

Abstract

In this study, we analyse contagion effects and extreme comovements of equity and volatility indices in major international markets. The tail dependence coecients (TDCs) increase during a financial crisis, especially for the lower TDCs of stock index returns and upper TDCs of volatility index returns. This indicates that crashes and uctuations are easier to transmit between markets during turmoils, implying the existence of contagion. In particular, we find that the crash events transmit from the Japanese market to other markets, whereas booms are more likely to transmit from the US and Europe to Japan.