A behavioral explanation for the negative asymmetric return–volatility relation

Hibbert, Ann Marie; Daigler, Robert T.; Dupoyet, Brice V.

doi:10.1016/j.jbankfin.2007.12.046

Cited by 206 publications

(189 citation statements)

References 31 publications

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“…Concerning leverage effects, we follow the approach by Hibbert et al (2008), who test various hypotheses of return-volatility relation with ordinary least squares (OLS). Contrary to them, this study does not make use of raw returns but standardized returns in order to neutralize the role of volatility in the return generating process.…”

Section: Methodsmentioning

confidence: 99%

“…Hence, we aim at filling this gap. We formally test for the presence of feedback and leverage effects in the volatility of WTI prices by running OLS regressions in the spirit of Hibbert et al (2008) and Fleming et al (1995). To do so, this article uses an index of implied volatility applied to the oil market (equivalent to the VIX methodology) given that the asymmetry is stronger for implied volatility than for historical volatility (see e.g.…”

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confidence: 99%

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Leverage vs. feedback: Which Effect drives the oil market?

Aboura

Chevallier

2013

Finance Research Letters

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This article brings new insights on the role played by (implied) volatility on the WTI crude oil spot price. An increase in the volatility subsequent to an increase in the oil price (i.e. inverse leverage effect) remains the dominant effect as it might reflect the fear of oil consumers to face rising oil prices. However, this effect is amplified by an increase in the oil price subsequent to an increase in the volatility (i.e. inverse feedback effect) with a two-day delayed effect. This lead-lag relation between the oil price and its volatility is determinant for any type of trading strategy based on futures and options on the OVX implied volatility index, and thus is of interest to traders, risk-and fund-managers.

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Section: Methodsmentioning

confidence: 99%

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confidence: 99%

Leverage vs. feedback: Which Effect drives the oil market?

Aboura

Chevallier

2013

Finance Research Letters

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“…No evidence of an asymmetric effect was found in this case. Also, Hibbert et al (2008) underlined, using several econometric approaches, a negative and asymmetrical relationship between the implied volatility index VIX-New and VXN-New and returns of the underlying stock indices S & P 500 and Nasdaq 100. However, they showed that assumptions of leverage and volatility feedback are unable to explain the relationship between implied volatility indices of contemporary returns and corresponding underlying assets indices.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamics of the Relationship between Implied Volatility Indices and Stock Prices Indices: The Case of European Stock Markets

Emna

Myriam

2017

Asian Economic and Financial Review

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“…As examined by a multitude of scholars [2][3][4][5][6][7], the demand for increased protection during market declines results in an asymmetric relationship between implied volatility and the underlying price-a phenomenon known as volatility asymmetry. We find that despite this relationship being well documented, option prices on the S&P 500 and the VIX have inadequately reflected these dynamics, even after similar observations were previously noted [7] 1 .…”

Section: Literature Reviewmentioning

confidence: 99%

Positive Alpha and Negative Beta (A Strategy for Counteracting Systematic Risk)

Noddeboe¹,

Faergemann²

2015

IJFS

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Undiversifiable (or systematic risk) has long been an enemy of investors. Many countercyclical strategies have been developed to counter this. However, like all insurance types, these strategies are generally costly to implement, and over time can significantly reduce portfolio returns in long and extended bull markets. In this paper, we discuss an alternative technique, founded on the premise of physiological bias and risk-aversion. We take a behavioral discussion in order to contextualize the insurance like characteristics of option pricing and discuss how this can lead to a mispricing of the asymmetric relationship between the VIX and the S&P 500. To test this, we perform studies in which we find statistical inefficiencies, thereby making it possible to implement a method of hedging index option premium in a way that has displayed no monthly drawdowns in bullish periods, while still providing large returns in major sell-offs. The three versions of the strategy discussed have negative betas to the S&P 500, while exhibiting similar risk-adjusted excess returns over both bull and bear markets. Further, the performance generated over the entire period, for all three strategies, is highly statistically significant. The results challenge the weak form of the Efficient Market Hypothesis and provide evidence that the methods of hedging could be a valuable addition to an equity rich portfolio for the purpose of counteracting systematic risk.

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A behavioral explanation for the negative asymmetric return–volatility relation

Cited by 206 publications

References 31 publications

Leverage vs. feedback: Which Effect drives the oil market?

Leverage vs. feedback: Which Effect drives the oil market?

Dynamics of the Relationship between Implied Volatility Indices and Stock Prices Indices: The Case of European Stock Markets

Positive Alpha and Negative Beta (A Strategy for Counteracting Systematic Risk)

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