From Wall Street to Dalal Street: tracing fear's path through quantile connectedness approach

Purpose Financial markets are greatly impacted by investor sentiment, especially fear, which heightens uncertainty and leads to quick decisions during volatile times. This study delves into the co-movement and directional spillover of fear sentiment across different quantiles, focusing on implied volatility indices of the USA, developed, emerging and Indian stock markets. Design/methodology/approach To achieve this, we employed wavelet coherence analysis and the quantile VAR model for the period from 2011 to 2023, enabling us to capture the interaction among fear indices across normal and high-volatility states. Findings The study reveals dynamic co-movement of sentiment among the markets with substantial spillovers under extreme quantiles. The Indian stock market is extremely susceptible to fear sentiment originating from the USA. The spillover of fear sentiment is stronger than the spillover of greed, indicating asymmetry in sentiment spillover. The study further underscores the US stock market's role in fear transmission. Originality/value This study highlights how extreme events impact the spillover of fear among developed and emerging stock markets by giving special attention to the Indian stock market.