Research Paper

DECISION

, Volume 41, Issue 4, pp 439-448

First online:

Inter-temporal relationship between India VIX and Nifty equity index

  • Imlak ShaikhAffiliated withDepartment of Humanities and Social Sciences, Indian Institute of Technology Bombay Email author 
  • , Puja PadhiAffiliated withDepartment of Humanities and Social Sciences, Indian Institute of Technology Bombay

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Abstract

This study investigates the contemporaneous inter-temporal relationship between implied volatility index and stock returns. The empirical evidence reveals that an asymmetry prevails among India VIX and the Nifty index; at the same time, the magnitude of asymmetry is not identical. The results show that the change in India VIX occurs bigger for the negative return shocks than that of positive return shocks. The empirical model described that long-run inter-temporal contemporaneous relation persists between the implied volatility and stock market returns. Moreover, the cross correlation has supported the past literature that current values of change in volatility and stock returns are negatively correlated, and past and current stock returns are positively associated with the future stock market volatility. The magnitude of the change of volatility in response to the return variation, one can use that level of changes as one of the inputs for the pricing of future options.

Keywords

Inter-temporal IVIX India VIX Nifty index Implied volatility