Do the SPX and VIX co-jump?

• Autor(a) principal: Salinas Tejerina, Claudio Alberto
• Data de Publicação: 2021
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/24160
• topic: Nonparametric jump test; Co-jump; Jump dynamics; SPX & VIX; Teste de salto não paramétrico; Salto simultâneo; Dinâmica de salto

The objective of this thesis is to look for evidence in jumps in returns and stochastic volatility in bear market conditions, namely market crashes and market corrections from 1990 to 2020. We use the SPX and VIX indexes to analyze the jumps in returns and stochastic volatility in the market, respectively. To detect jumps, we apply the nonparametric test of Lee and Mykland (2008) to identify jump arrival times and realized jump sizes. First, we assess the performance of the test using low and high-frequency data, comparing the detected jumps with a benchmark database for the study period. Then, we assess the outcomes of the tests aiming to answer the following questions: Does volatility spikes exactly when there is a stock market crash or correction? Do the SPX and VIX indexes co-jump when there is a stock market crash or correction? Do the SPX and VIX indexes jump in opposite directions when there is a stock market crash or correction? Historically, which of the indexes jump more frequently? The results reveal several findings regarding the relationship between the SPX returns and the changes in the VIX. In a nutshell, we conclude that the SPX tends to jump more frequently than the VIX. When there is an event related to a market crash or market correction, the indices co-jump in opposite directions. The VIX, in our high-frequency study, jumped in all benchmark dates, which leads us to conclude that volatility spikes exactly when there is a market crash or correction.