Dynamics of global stock market correlations: the VIX and attention allocation

This paper investigates the dynamics of international stock return correlations between the U.S., the U.K., Germany and France. Estimated correlations are modeled in an ARDL framework to evaluate how the market-wide uncertainty in the U.S. affects international stock market comovements. Results show...

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Bibliographic Details
Published in:Journal of applied economics 2021-01, Vol.24 (1), p.392-400
Main Author: Ceylan, Özcan
Format: Article
Language:English
Subjects:
Dynamic conditional correlations
investor attention
return comovements
VIX index
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Summary:This paper investigates the dynamics of international stock return correlations between the U.S., the U.K., Germany and France. Estimated correlations are modeled in an ARDL framework to evaluate how the market-wide uncertainty in the U.S. affects international stock market comovements. Results show that a shock to the VIX leads to increases in cross-county correlations in the following week and that the correlations tend to decline in the second week that follows the shock. The revealed time pattern of the effect of the VIX may be explained in a behavioral framework through investors' attention reallocation mechanism.
ISSN:1514-0326
1667-6726
DOI:10.1080/15140326.2021.1949257