The Time Decaying Synchronization between the Volatility Index and KOSPI Return

Abstract

This study examines the spillover effect of the volatility index on the stock return of the Korean stock market. Empirical analysis utilizes the US volatility index (VIX) in the return format and the KOSPI daily return data for the twenty years from January 2002 to December 2021. Using the time-series models, I find that the VIX is negatively associated with the KOSPI stock return. Further, the result shows that the influence of the VIX becomes weakened in the later period after the financial crisis. Nevertheless, the negative relation between the VIX return and the KOSPI return remains persistent, suggesting that the VIX serves as a preceding indicator for the Korean stock market.