Implied Volatility Indices – A Review

Document Type

Article

Source of Publication

SSRN Electronic Journal

Publication Date

1-1-2009

Abstract

An implied volatility index reflects the market expectations for the future volatility of the underlying equity index. This study tests and documents the information content, regarding both the realized volatility and the returns of the underlying equity index, of all publicly available implied volatility indices across the world. The empirical findings suggest that implied volatility indices include information about future volatility beyond that contained in past volatility. In addition, we show that there is a statistically significant negative and asymmetric contemporaneous relationship between implied volatility changes and the corresponding underlying equity index returns. Furthermore, this study contributes to the international equity market integration studies by investigating the linkages among major stock exchanges; the basis of the integration analysis is the implied volatility of each market, as proxied by the corresponding implied volatility index and the findings suggest that there is significant integration with respect to market participants' expectations about future uncertainty.

ISSN

1556-5068

Publisher

Elsevier BV

Disciplines

Business

Keywords

Implied volatility, Implied volatility indices, Transmission of uncertainty, VIX

Scopus ID

85087962480

Indexed in Scopus

yes

Open Access

yes

Open Access Type

Bronze: This publication is openly available on the publisher’s website but without an open license

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