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Volatility impacts on global banks: Insights from the GFC, COVID-19, and the Russia-Ukraine war

Jonathan A. Batten Orcid Logo, Sabri Boubaker Orcid Logo, Harald Kinateder Orcid Logo, Tonmoy Choudhury Orcid Logo, Niklas F. Wagner

Journal of Economic Behavior & Organization, Volume: 215, Pages: 325 - 350

Swansea University Author: Sabri Boubaker Orcid Logo

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DOI (Published version): 10.1016/j.jebo.2023.09.016

Abstract

This study analyzes the volatility impact of the Chicago Board Options Exchange Volatility Index (VIX) on the global banking sector during the Global Financial Crisis (GFC), COVID-19, and the Russia-Ukraine War. Using a Dynamic Conditional Correlation (DCC) model with asymmetric Generalized Autoregr...

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Published in: Journal of Economic Behavior & Organization
ISSN: 0167-2681
Published: Elsevier BV 2023
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URI: https://cronfa.swan.ac.uk/Record/cronfa64816
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Abstract: This study analyzes the volatility impact of the Chicago Board Options Exchange Volatility Index (VIX) on the global banking sector during the Global Financial Crisis (GFC), COVID-19, and the Russia-Ukraine War. Using a Dynamic Conditional Correlation (DCC) model with asymmetric Generalized Autoregressive Conditional Heteroskedasticity (GARCH) volatility, we examine three geographical regions, focusing on large banks. The key findings include significant symmetric Granger causality between volatility changes and negative bank returns during the GFC, asymmetric impacts of volatility increases and decreases in the lower quartile of bank returns, with COVID-19 exhibiting the strongest asymmetry, and volatility shocks affecting the downside risk of the banking sector, where the highest value-at-risk (VaR) levels occur in the GFC and the lowest during the war period. Finally, Asian banks demonstrated greater resilience to volatility impacts than European banks, which were the most affected by COVID-19 and the war. Overall, we find that volatility has less impact on the global banking sector in the war sample than in other crises. Our findings provide valuable insights for policymakers, investors, and regulators to help effectively manage future crises and ensure the stability of the global banking sector.
Keywords: Banks, Financial institutions, GSIB, Implied volatility, Pandemics, Value-at-risk, War
College: Faculty of Humanities and Social Sciences
Funders: Tonmoy Choudhury would like to acknowledge the support of King Fahd University of Petroleum and Minerals for financial assistance under grant numbers INFE2207 and EC213001.
Start Page: 325
End Page: 350

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