Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model

We examine the predictive power of implied volatility in the commodity and major developed stock markets for the implied volatility in individual BRICS stock markets. We use daily data from March 2011 to October 2016 and employ the newly developed Bayesian Graphical Structural Vector Autoregressive...

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Bibliographic Details
Published in:Emerging markets review 2018-03, Vol.34, p.124-142
Main Authors: Bouri, Elie, Gupta, Rangan, Hosseini, Seyedmehdi, Lau, Chi Keung Marco
Format: Article
Language:English
Subjects:
Bayesian Graphical Structural VAR
BRICS
Implied volatility index
Strategic commodities
VIX
Volatility predictability
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Summary:We examine the predictive power of implied volatility in the commodity and major developed stock markets for the implied volatility in individual BRICS stock markets. We use daily data from March 2011 to October 2016 and employ the newly developed Bayesian Graphical Structural Vector Autoregressive (BGSVAR) model of Ahelegbey et al. (2016). Evidence suggests that the predictability of individual implied volatilities in BRICS is generally a function of both global and within the group stock market implied volatilities, and that the role of commodity market volatility is marginal, except for South Africa. Important implications for policy-makers and portfolio-managers are discussed. •Examine predictive power of VIX in the commodity and developed stock markets for the VIX in individual BRICS markets•Use Bayesian Graphical Vector Autoregressive model•Find that predictability depends on global and regional VIXs•Role of commodity VIXs is marginal, except for South Africa.
ISSN:1566-0141
1873-6173
DOI:10.1016/j.ememar.2017.11.004