DECISION

, Volume 41, Issue 4, pp 439–448

Inter-temporal relationship between India VIX and Nifty equity index

Research Paper

DOI: 10.1007/s40622-014-0046-0

Cite this article as:
Shaikh, I. & Padhi, P. Decision (2014) 41: 439. doi:10.1007/s40622-014-0046-0

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 

Copyright information

© Indian Institute of Management Calcutta 2014

Authors and Affiliations

  1. 1.Department of Humanities and Social SciencesIndian Institute of Technology BombayMumbaiIndia

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