Transmission of U.S. Stock Market Implied
Volatility to Equity Markets of Emerging Countries

Abstract

This article examines the predictive power of the implied volatility originating in the U.S. stock market (USVIX) on returns of Brazil, Russia, India, and China (BRIC nations). By means of VAR and GARCH methodology, we model the relationship of USVIX, a probabilistic interpretation concerning the near-term implied volatility of Standard & Poor’s 500 Index and the market returns of Brazil, Russia, India, and China. Results from this study show that returns of all BRIC nations in our sample are negatively and significantly impacted by USVIX, albeit with varying degree and magnitude. We also find evidence of volatility spillover from the USVIX to the market returns of BRIC nations.