An Insight of Implied Volatility Vis-a-Vis its Informational Efficiency, Association with Underlying Assets and Spillovers Effects

The purpose of this paper is to provide a comprehensive synthesis of past studies regarding the informational content of broad set of volatility indices and reviews the up-to-date empirical and theoretical research studies of last five decades from 1964 to 2015. The literature review reports that overall volatility indices outperform predictions based on the historical volatility measures to predict future realized volatility; also it can be considered as a risk management tool and as a technical analysis indicator to predict future realizedreturns, and there is evidence of volatility contagion and spillovers between developed and developing countries which help in international diversification. The present review paper reflects the importance of implied volatility index in investment, asset pricing, security valuation, risk management and monetary policy making. This article presents the most recent research on implied volatility indices and gives a bird’s eye view to the novice researchers in this area.