Uncovering a positive risk-return relation: the role of implied volatility index

Angelos Kanas ()

Review of Quantitative Finance and Accounting, 2014, vol. 42, issue 1, 159-170

Abstract: We report empirical evidence suggesting a strong and positive risk-return relation for the daily S&P 100 market index if the implied volatility index is included as an exogenous variable in the conditional variance equation. This result holds for alternative GARCH specifications and conditional distributions. Monte Carlo evidence suggests that if implied volatility is not included, whilst is should be, the risk-return relation is more likely to be negative or weak. Copyright Springer Science+Business Media, LLC 2014

Keywords: S&P 100; Implied volatility index; GARCH-M; Risk-return relation; G12; C22 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:42:y:2014:i:1:p:159-170

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DOI: 10.1007/s11156-012-0317-9

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