, Volume 42, Issue 1, pp 33–55 | Cite as

On asymmetric relationship of India volatility index (India VIX) with stock market return and risk management

  • Abhijeet Chandra
  • M. Thenmozhi
Research Paper


This study examines the asymmetric relationship between India volatility index (India VIX) and stock market returns, and demonstrates that Nifty returns are negatively related to the changes in India VIX levels, but in case of high upward movements in the market, the returns on the two indices tend to move independently. When the market takes sharp downward turn, the relationship is not as significant for higher quantiles. This property of India VIX makes it a strong candidate for risk management tool whereby derivative products based on the volatility index can be used as a tool for portfolio insurance against worst declines. We also find that India VIX captures stock market volatility better than traditional measures of volatility including ARCH/GARCH class of models. Finally, we test whether changes in India VIX can be used as a signal for switching portfolios. Our analysis of timing strategy based on change in India VIX exhibits that switching to large-cap (mid-cap) portfolio when India VIX increases (decreases) by a certain percentage point can be useful for maintaining positive returns on a portfolio.


India volatility index Stock returns Risk management Trading strategy Portfolio management 

JEL Classification

C12 C15 C21 C53 



The paper is based on a project initiated and sponsored by the National Stock Exchange of India Ltd. (NSE), and the full report has appeared as the NSE Working Paper WP/9/2013 under NSE Working Paper Series. The financial support from the NSE is gratefully acknowledged. We would like to thank Saumitra Bhaduri, P. Krishna Prasanna, Murugappa Murgie Krishnan, and Narend S. for their constructive comments on earlier versions of the paper. We also thank the Editor and anonymous reviewers for their helpful comments. The usual disclaimers apply.


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Copyright information

© Indian Institute of Management Calcutta 2014

Authors and Affiliations

  1. 1.Department of Management Studies (DoMS)Indian Institute of Technology MadrasChennaiIndia

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