International Journal of Financial Management

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Spillovers and Transmission in Emerging and Mature Markets Implied Volatility Indices


Affiliations
1 Professor, Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar (Haryana)
2 Professor, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar, Haryana
3 JRF, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar, Haryana
     

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Purpose: The present study examine implied volatility spillover and transmission between emerging (India) and mature stock markets (US, France, Germany and Switzerland), measured by their respective implied volatility indices i.e. IVIX, VIX, VCAC, VDAX and VSMI.
Methodology: The asymmetries in Implied Volatility (IV) indices of selected countries are examined using Engle and Ng (1993) test. The spillovers and transmission are examined in multivariate-GARCH framework using BEKK and DCC model. The analysis is done using weekly data for period spanning from Nov, 2007 to Oct, 2011March. Findings: The main findings of study document asymmetries in the IV indices exist for the Indian, American and French markets. The BEKK-GARCH model results show that conditional variances of implied VI of India, Germany, French and Switzerland strongly affected by their own past shocks and volatility effects. The DCC model reveals that there is a moderate-level of correlation between the selected markets.
Practical Implications: The results of the present study can be used by the portfolio managers and market participant for yielding the diversification benefits in short-run by including IV indices as an asset in their portfolio.

Keywords

Implied Volatility Index, Indian Stock Market, BEKK-GARCH, DCC, VIX, VSMI
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  • Spillovers and Transmission in Emerging and Mature Markets Implied Volatility Indices

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Authors

Karam Pal Narwal
Professor, Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar (Haryana)
Ved Pal Sheera
Professor, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar, Haryana
Ruhee Mittal
JRF, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar, Haryana

Abstract


Purpose: The present study examine implied volatility spillover and transmission between emerging (India) and mature stock markets (US, France, Germany and Switzerland), measured by their respective implied volatility indices i.e. IVIX, VIX, VCAC, VDAX and VSMI.
Methodology: The asymmetries in Implied Volatility (IV) indices of selected countries are examined using Engle and Ng (1993) test. The spillovers and transmission are examined in multivariate-GARCH framework using BEKK and DCC model. The analysis is done using weekly data for period spanning from Nov, 2007 to Oct, 2011March. Findings: The main findings of study document asymmetries in the IV indices exist for the Indian, American and French markets. The BEKK-GARCH model results show that conditional variances of implied VI of India, Germany, French and Switzerland strongly affected by their own past shocks and volatility effects. The DCC model reveals that there is a moderate-level of correlation between the selected markets.
Practical Implications: The results of the present study can be used by the portfolio managers and market participant for yielding the diversification benefits in short-run by including IV indices as an asset in their portfolio.

Keywords


Implied Volatility Index, Indian Stock Market, BEKK-GARCH, DCC, VIX, VSMI

References