Date of Award
4-21-2017
Degree Type
Doctoral Dissertation
Degree Name
Doctor of Business Administration (DBA)
Department
Jack Welch College of Business
Dissertation Supervisor
Dr. Lucjan T. Orlowski
Abstract
Our study shows that market-implied inflation expectations proxied by the breakeven inflation are directly related to market risk in high inflation environments and inversely during the periods of declining inflation or deflationary expectations. We use daily data series of percent changes in VIX as a proxy of market risk and changes in 5-year and 10-year breakeven inflation reflecting expectations of bond market participants. We employ Bayesian VAR, multiple breakpoint and Markov switching tests to examine the functional relationship between VIX and breakeven inflation for the January 3, 2003 – April 5, 2016 sample period. Our tests indicate a significant inverse relationship between VIX and, particularly, the 5-year breakeven inflation, which holds mainly during the recent financial crisis and the post-crisis periods.
Highlights
Highlights: • Recent increases in market risk are associated with deflationary expectations • Significant negative relationship between 5Y &10Y BEI, and VIX prevails in 2008-2013 • 5Y BEI inflation expectations relate with market risk better than 10Y BEI • Partial regime switching between VIX and BEI occurs during turbulent markets
JEL Classification
C58, G13
Recommended Citation
Soper, C.C. (2017). VIX and market-implied inflation expectations. Jack Welch College of Business dissertation. Sacred Heart University, Fairfield, CT.
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Included in
Business Administration, Management, and Operations Commons, Finance and Financial Management Commons
Comments
In partial fulfillment of the requirements For the degree of Doctor of Business Administration in Finance Sacred Heart University, Jack Welch College of Business.