A0913
Title: Market response to a fear impulse
Authors: Stefan Voigt - University of Copenhagen (Denmark) [presenting]
Nikolaus Hautsch - University of Vienna (Austria)
Albert Menkveld - Vrije Universiteit Amsterdam (Netherlands)
Abstract: Thirty billion Nasdaq order-book messages for exchange-traded funds are analyzed to delineate how the market responds to a VIX impulse. We find that investors actively sell equities and buy government bonds on largely unchanged liquidity. A deeper analysis shows that this result is entirely driven by investors becoming more averse to uncertainty. In other words, changes in the variance-risk premium are responsible for the pattern we find for VIX impulses. For impulses driven by changes in cash-flow risk, we find active buying of equities on worse liquidity. We rationalize these patterns by essentially adding risk shocks to a previous study.
