Spread of volatility between financial markets: New fragile five countries

Recently, with the international financial liberalization movements and the progress of the innovation sector, the connection between international financial markets has become an important extension by providing integration in the markets. In the literature, volatility spillover has been the subject of consideration with the interaction of international capital movements between markets. Volatility spillover is expressed as a shock between different financial markets increasing the volatility in the other market. As a result of the spread of volatility in financial markets, it is seen that the returns and prices in stocks will be under the influence of these shocks. In this context, portfolio diversification decisions of investors may also vary. It is necessary to take into account the return of the investment made by the investors and the risks that will arise due to it. In addition, in some cases, economic uncertainty and instability in developing countries can cause high volatility. The "Fear Index", also known as investor sentiment, is the leading indicator for financial markets. Today, it is a data that needs to be researched and determined in financial markets. In this study, it is aimed to test the possible existence of volatility spillover between VIX Index and fragile five (Turkey MSCI Turkey, Argentina MSCI Argentina, Qatar MSCI Qatar, Egypt MSCI Egypt and Pakistan MSCI Pakistan). In the study, daily closing prices of stocks for the period 01.04.2014-14.02.2023 were used as the common and accessible data set of five countries' stock market indexes. Taking into account the asymmetric effect, volatility spillover effects in terms of the interactions of country market indices were analyzed using EGARCH models. When the findings are evaluated, it is concluded that there is a spread of volatility from the CBOE fear index to all the stock markets of the new fragile five countries.