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The information content in a volatility index for Spain

Abstract

A model-free methodology is used for the first time to estimate a daily volatility index (VIBEX-NEW) for the Spanish financial market. We use a public data set of daily option prices to compute this index and show that daily changes in VIBEX-NEW display a negative, tight contemporaneous relationship with IBEX daily returns, contrary to other common volatility indicators, as an implied volatility indicator or a GARCH(1,1) conditional volatility model. This relationship is approximately symmetric to the sign on VIBEX-NEW changes and asymmetric to the IBEX-35 returns sign, which make it clearly a suitable volatility index for the Spanish stock market. We also examine the relationship between current VIBEX-NEW and future IBEX-35 volatility. Our results suggest that VIBEX-NEW can be used to produce IBEX-35 volatility forecasts at least as good as historical and conditional volatility measures. A feasible volatility correction methodology is proposed to achieve it.

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Correspondence to Maria T. Gonzalez-Perez.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License (https://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Gonzalez-Perez, M.T., Novales, A. The information content in a volatility index for Spain. SERIEs 2, 185–216 (2011). https://doi.org/10.1007/s13209-010-0031-6

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  • DOI: https://doi.org/10.1007/s13209-010-0031-6

Keywords

  • Model-based volatility index
  • Model-free volatility index
  • Risk
  • Leverage effect
  • Forecasting volatility

JEL Classification

  • C53
  • G13
  • G15