U.S. stock market uncertainty and cross-market European stock returns

•We examine the relations between VIX and European stock market returns.•A negative relation exists between VIX and European returns during the financial crisis.•VIX predicted European stock returns during but not before the financial crisis.•The VIX fears persist longer in European markets than in the U.S. market.

We investigate the cross-market differential relations of U.S. stock market uncertainty (VIX) with U.S. and European stock market returns before and during the European equity market crisis. Also, we examine whether VIX has predictive ability with respect to short-run European stock market returns. We find a strong negative contemporaneous relation between VIX changes and European stock returns that was twice as large during the equity market crisis period than before it. Changes in VIX have significant predictive ability for daily returns in the major European equity markets during the European equity market crisis period but not before it. The VIX fears persist longer in European markets than in the U.S. market, suggesting market frictions and limitations in information-processing capabilities of investors.