The volatility index and volatility risk premium in China

Tian Yue, Xinfeng Ruan, Sebastian Gehricke and Jin E. Zhang

The Quarterly Review of Economics and Finance, 2023, vol. 91, issue C, 40-55

Abstract: We introduce the China Volatility Index (CNVIX), a model-free volatility index for the Chinese equity market based on ETF options. To construct the CNVIX, we extend the Chicago Board Options Exchange (CBOE) methodology in the emerging Chinese options market. We examine the leverage effect and volatility feedback effect between the CNVIX and the underlying asset, as well as the CNVIX’s return forecastability. Our findings indicate a significant negative asymmetric leverage effect, insignificant volatility feedback effect in the CNVIX, and a positive mean volatility risk premium (VRP), which can forecast the underlying asset’s returns over various horizons.

Keywords: Model-free Volatility Index; ETF Options; Volatility Risk Premium; Emerging option market; China (search for similar items in EconPapers)
JEL-codes: G13 G14 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:91:y:2023:i:c:p:40-55

DOI: 10.1016/j.qref.2023.07.004

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