With option-implied volatility indices, we identify networks of global volatility spillovers and examine time-varying systemic risk across global financial markets. The US stock market is the center of the network and plays a dominant role in the spread of volatility spillover to other markets. The global systemic risks have intensified since the Federal Reserve exited from quantitative easing, hiked interest rateand shrank its balance sheet. We further show that the US monetary tightening is an important catalyst for the intensifying global systemic risk. Our findings highlight the pernicious effects of monetary tightening after an era of cheap money.

Zihui Yang, Lingnan College, Sun Yat-Sen University, Guangzhou, China Yinggang Zhou, Senior Research Fellow of IMI, Center for Macroeconomic Research and Department of Finance, School of Economics, and Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, China Xin Cheng, Department of Finance, School of Economics, Xiamen University, Xiamen, China WP2002