European ‘Fear’ Indices – Evidence Before and During the Financial Crisis

摘要: We document a negative and asymmetric contemporaneous relation of European stock implied volatility returns. The is significantly more pronounced at the highest quantile market return distribution (i.e. largest price decrease). between returns exhibits differences consistent with institutional cultural clusters. For example, German tends to be responsive changes in compared UK market. In addition, spread for these two markets persist longer period other spreads. degree integration leading (UK, Germany France) markets, however, very high shocks on die out within few days. Our Markov switching model distinguishes three regimes. Large both, increase probability that enters higher (from low middle from high) regime. Factor loadings obtained by principal component analysis (PCA) are also regime dependent. Compared US, tend driven tilts non-linear movements term structure. findings lend support behavioral explanation return-implied have implications risk management.