The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.

We explore the use of implied volatility indices as a tool for estimate changes in the synchronization of stock markets. Specifically, we assess the implied stock market's volatility indices' predictive power on synchronizing global equity indices returns. We built the correlation network...

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Autores principales:	Nicolás Magner, Jaime F Lavin, Mauricio Valle, Nicolás Hardy
Formato:	article
Lenguaje:	EN
Publicado:	Public Library of Science (PLoS) 2021
Materias:	Medicine R Science Q
Acceso en línea:	https://doaj.org/article/58a0cde6ed6d4d4195339ede508218a5
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id	oai:doaj.org-article:58a0cde6ed6d4d4195339ede508218a5
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spelling	oai:doaj.org-article:58a0cde6ed6d4d4195339ede508218a52021-12-02T20:03:59ZThe predictive power of stock market's expectations volatility: A financial synchronization phenomenon.1932-620310.1371/journal.pone.0250846https://doaj.org/article/58a0cde6ed6d4d4195339ede508218a52021-01-01T00:00:00Zhttps://doi.org/10.1371/journal.pone.0250846https://doaj.org/toc/1932-6203We explore the use of implied volatility indices as a tool for estimate changes in the synchronization of stock markets. Specifically, we assess the implied stock market's volatility indices' predictive power on synchronizing global equity indices returns. We built the correlation network of 26 stock indices and implemented in-sample and out-of-sample tests to evaluate the predictive power of VIX, VSTOXX, and VXJ implied volatility indices. To measure markets' synchronization, we use the Minimum Spanning Tree length and the length of the Planar Maximally Filtered Graph. Our results indicate a high predictive power of all the volatility indices, both individually and together, though the VIX predominates over the evaluated options. We find that an increase in the markets' volatility expectations, captured by the implied volatility indices, is a good Granger predictor of an increase in the synchronization of returns in the following month. Estimating, monitoring, and predicting returns' synchronization is essential for investment decision-making, especially for diversification strategies and regulating financial systems.Nicolás MagnerJaime F LavinMauricio ValleNicolás HardyPublic Library of Science (PLoS)articleMedicineRScienceQENPLoS ONE, Vol 16, Iss 5, p e0250846 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Medicine R Science Q
spellingShingle	Medicine R Science Q Nicolás Magner Jaime F Lavin Mauricio Valle Nicolás Hardy The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.
description	We explore the use of implied volatility indices as a tool for estimate changes in the synchronization of stock markets. Specifically, we assess the implied stock market's volatility indices' predictive power on synchronizing global equity indices returns. We built the correlation network of 26 stock indices and implemented in-sample and out-of-sample tests to evaluate the predictive power of VIX, VSTOXX, and VXJ implied volatility indices. To measure markets' synchronization, we use the Minimum Spanning Tree length and the length of the Planar Maximally Filtered Graph. Our results indicate a high predictive power of all the volatility indices, both individually and together, though the VIX predominates over the evaluated options. We find that an increase in the markets' volatility expectations, captured by the implied volatility indices, is a good Granger predictor of an increase in the synchronization of returns in the following month. Estimating, monitoring, and predicting returns' synchronization is essential for investment decision-making, especially for diversification strategies and regulating financial systems.
format	article
author	Nicolás Magner Jaime F Lavin Mauricio Valle Nicolás Hardy
author_facet	Nicolás Magner Jaime F Lavin Mauricio Valle Nicolás Hardy
author_sort	Nicolás Magner
title	The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.
title_short	The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.
title_full	The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.
title_fullStr	The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.
title_full_unstemmed	The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.
title_sort	predictive power of stock market's expectations volatility: a financial synchronization phenomenon.
publisher	Public Library of Science (PLoS)
publishDate	2021
url	https://doaj.org/article/58a0cde6ed6d4d4195339ede508218a5
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The predictive power of stock market's expectations volatility: A financial synchronization phenomenon.

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