The Relationship between International Investment Position’s Assets and Liabilities Items with the VIX Fear Index: The Case of Turkey

Abstract

The VIX (volatility index), that has recently become more important as an indicator of the global risk appetite in the financial markets with its international investment position, has been scrutinized by the financial makers of many countries. The aim of the study is to determine the relationship between the assets and liabilities items of the international investment position (UYP) and the VIX fear index calculated by the Chicago Option Exchange, which is an implicit risk measure that reflects the prospective risk expectations in option prices, with error correction model, ARDL cointegration test and Granger causality analysis. The study was conducted using quarterly data for Turkey between 2006 and 2019. According to the cointegration test results, a long-term negative relationship was found between the VIX index and the UYP asset and liability items. According to the findings based on the error correction model, there is a negative relationship between the asset and liability items and the VIX index in a short term in accordance with the long term. In terms of the Granger causality relationship, only one-sided causality relationship has been reached from the VIX index to the asset item.