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This article explores the relationship of changes in the S&P 500 index implied volatility surface to economic state variables. Observable variables can explain some of the variation in implied volatility, with the majority of explanatory power from index returns. Although the contemporaneous return is most important for explaining changes in short dated volatility, the path of the index is important for explaining changes in long dated volatility. Other variables also display statistically significant relations to volatility changes. Shocks to the Nikkei 225, short‐term interest rates, and the corporate/government bond yield spread are correlated with small, systematic changes in implied volatility. The results suggest a multifactor model for market volatility, with factors other than index returns adding negligible explanatory ability. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:915–937, 2002

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