CBOE volatility index (VIX) and corporate market leverage

Abstract

Our paper investigates the nexus between the CBOE Volatility Index (VIX) and the market leverage of firms listed on the US stock market. Analyzing the yearly database of non-financial US firms from 2000 to 2019, we find that an increase in the VIX index has a positive impact on the leverage of the corporate market. We also find robust evidence that the US-listed firms tend to use more market leverage in the future year when the VIX index ascends. Furthermore, we find a more prominent positive effect of the change in the VIX index on the long-term market leverage than the short-term market leverage. Different approaches for the panel models firmly support our findings. In addition, our research suggests that the implied volatility index is a good proxy to measure investors’ fear of securities investment and provides a good foundation for making the capital structure decisions for the firms listed on the US stock market.

Keywords

• CBOE volatility (VIX) index
• corporate market leverage
• US-listed firms
• G18
• G30
• G32