Sign and size asymmetry in the stock returns-implied volatility relationship

Panos Fousekis

The Journal of Economic Asymmetries, 2020, vol. 21, issue C

Abstract: This work investigates the relation between stock returns and changes in risk perceptions using data from four pairs of stock and implied volatility indices and the non-parametric local regression approach. The results show that the association between the two variables is negative, contemporaneous, non-linear, and asymmetric with respect to the sign and to the size of stock returns. The underlying relationship for the stock markets in the EU, in the USA, and (to a large extent) in Australia has a reverse S-shape something that contrasts sharply with the theoretical postulates of fear and exuberance. The results from the Chinese market, however, are mixed; they support the fear postulate but not the exuberance one.

Keywords: Stock returns; Implied volatility; Non-linearity; Asymmetry (search for similar items in EconPapers)
JEL-codes: C14 G1 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:21:y:2020:i:c:s1703494920300098

DOI: 10.1016/j.jeca.2020.e00162

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