A first look at the properties of India's volatility index

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to examine the statistical properties of the volatility index of India, India Vix (Ivix), its relationship with the Indian stock market and its predictive power for forecasting future variance. Further, the paper examines the volatility transmission between India and developed markets. Design/methodology/approach -The study uses quantile regression and VAR techniques to examine the empirical issues. Findings -The results of the study show that Ivix returns are negatively related to stock market returns and the leverage effect is only significant around the middle of the joint distribution. The asymmetric response of Ivix is also not observed in the left tail and is significant again around the centre of the distribution. Monthly volatility forecasts obtained from Ivix contain important information about future market volatility. Finally, overnight volatility movements from the US market have significant effect on the Indian market's volatility and transmission in opposite direction was not observed. Practical implications -If Ivix is included in a stock portfolio when the market moves up, Ivix may not fall significantly, consequently, the portfolio returns are not negatively effected. But, when market declines sharply, i.e. for large losses, Ivix may not move up significantly in the opposite direction, thereby not providing the much-needed insurance to the portfolio returns. But for normal/average market declines, volatility derivatives on Ivix may be useful as portfolio insurance tools. Originality/value -The paper is novel in employing quantile regression methodology to examine the empirical relationships of a volatility index. Volatility spillovers between emerging and developed markets are studied using volatility indices that are ex ante.

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

“…The assumption of leverage is affirmed. Kumar (2012) found that changes in the implied volatility index Ivix are negatively correlated to the returns of the Nifty 225 market index of the Indian stock market. Furthermore, he showed that during extreme stock market movements, this relationship becomes insignificant.…”

The Forecasting Power of the Volatility Index: Evidence from the Indian Stock Market

“…Kumar (2012) finds negative association between the India VIX and stock market returns and the presence of leverage effect significantly around the middle of the joint distribution. Bagchi (2012) constructs value-weighted portfolios based on beta, market-to-book value and market capitalisation parameters, and reports a positive and significant relationship between the India VIX and the returns of the portfolios.…”

“…In the Indian context, Kumar (2012) and Bagchi (2012) studied the India VIX and its relationship with the Indian stock market returns. Kumar (2012) finds negative association between the India VIX and stock market returns and the presence of leverage effect significantly around the middle of the joint distribution.…”

European ‘Fear’ Indices – Evidence before and during the Financial Crisis

“…7 Elsewhere, lack of the asymmetry in association between implied volatility and stock returns was reported for Canadian (Siriopoulos and Fassas, 2008) and Australian indices (Frijns et al, 2010;Dowling and Muthuswamy, 2005). Strong asymmetric association was reported for Korean (Ting, 2007) and Indian (Kumar, 2012) indices. We start the analysis by regressing daily returns of all sample stock indices on the corresponding volatility index returns:…”