South Asian Journal of Management

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An Analysis of Spillover of Return and Asymmetric Spillover of Volatility between NIFTY and India VIX


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1 International Management Institute (IMI), B-10, Qutab Institutional Area, Tara Crescent, New Delhi, Delhi 110016, India
     

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Volatility in stock markets is a phenomena arising from change in stock prices due to new information that arrives continuously, causing changes in market scenario. Volatility is the key measure of risk to value assets like stocks, commodities, derivatives, etc. option prices reflect the volatility of underlying and these have been used in developing Volatility Index (VIX), which is quite popularly being considered to be a measure of market volatility. This research study measures the spillover of volatility from VIX to stock market and examines whether there exists an asymmetric response from by Indian stock market to VIX, i.e., whether stock market reacts differently towards positive and negative shocks from VIX. It also tends to determine whether this asymmetry exists during bullish and bearish phases as well as during a combination of sign and phase asymmetry. VIX is compared against other methods, viz., EWMA, GARCH and EGARCH to evaluate its effectiveness in measuring volatility by use of in sample tests. Along with this TGARCH was used to measure volatility spillover and asymmetry in spillover. Finally, the study concluded as VIX being the best measure of volatility and presence of sign but no phase asymmetry in volatility transmission from NIFTY to VIX.

Keywords

Asymmetry, NIFTY, Spillover, VIX, Volatility.
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  • An Analysis of Spillover of Return and Asymmetric Spillover of Volatility between NIFTY and India VIX

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Authors

Monika Chopra
International Management Institute (IMI), B-10, Qutab Institutional Area, Tara Crescent, New Delhi, Delhi 110016, India

Abstract


Volatility in stock markets is a phenomena arising from change in stock prices due to new information that arrives continuously, causing changes in market scenario. Volatility is the key measure of risk to value assets like stocks, commodities, derivatives, etc. option prices reflect the volatility of underlying and these have been used in developing Volatility Index (VIX), which is quite popularly being considered to be a measure of market volatility. This research study measures the spillover of volatility from VIX to stock market and examines whether there exists an asymmetric response from by Indian stock market to VIX, i.e., whether stock market reacts differently towards positive and negative shocks from VIX. It also tends to determine whether this asymmetry exists during bullish and bearish phases as well as during a combination of sign and phase asymmetry. VIX is compared against other methods, viz., EWMA, GARCH and EGARCH to evaluate its effectiveness in measuring volatility by use of in sample tests. Along with this TGARCH was used to measure volatility spillover and asymmetry in spillover. Finally, the study concluded as VIX being the best measure of volatility and presence of sign but no phase asymmetry in volatility transmission from NIFTY to VIX.

Keywords


Asymmetry, NIFTY, Spillover, VIX, Volatility.

References