The The Impact of Financial Stress Index, CBOE Volatility Index, Economic Policy Uncertainty Index, and Macroeconomic Factors on Global Stock Market Indices: Evidence from S&P 500, Nikkei 225, and FTSE 100

Abstract

This study aims to examine the impact of the Financial Stress Index, CBOE Volatility Index, Economic Policy Uncertainty Index, and macroeconomic factors on major stock market indices: the S&P 500, Nikkei 225, and FTSE 100. This research employs a quantitative approach utilizing secondary data in the form of monthly time series data collected over 172 months, from September 2010 to December 2024. The analysis applies econometric methods, specifically multiple linear regression, to identify the independent variables that significantly influence the stock indices under investigation. The findings indicate that both the Financial Stress Index and the CBOE Volatility Index exhibit negative relationships with the S&P 500, Nikkei 225, and FTSE 100 indices. This suggests that investors tend to reduce their exposure to risky assets when market stress or volatility increases. Conversely, crude oil prices demonstrate positive associations with all three indices, underscoring their role as a proxy for global economic growth. Regarding the Economic Policy Uncertainty Index, the U.S. EPU shows no significant relationship with the S&P 500, whereas the Japanese and U.K. EPUs exhibit negative relationships with the Nikkei 225 and FTSE 100, respectively. This highlights the heterogeneous influence of policy uncertainty across different countries and their respective capital markets. Finally, gold prices are positively correlated with the S&P 500, negatively correlated with the Nikkei 225, and show no significant relationship with the FTSE 100. The research provides valuable insights for forecasting the movements of these major stock indices and contributes to enhanced investment portfolio management and risk mitigation strategies.