Implied Volatility Transmissions Between Thai and Selected Advanced Stock Markets

Supachok Thakolsri, Yuthana Sethapramote and Komain Jiranyakul

SAGE Open, 2016, vol. 6, issue 3, 2158244016659318

Abstract: This article investigates the impacts of changes in the U.S.-implied volatility on the changes in implied volatilities of the Euro and Thai stock markets. For that purpose, volatilities implicit in stock index option prices from the United States, Euro, and Thai stock markets are analyzed using the Standard Granger Causality Test, impulse response analysis, and variance decompositions. The results found in this study suggest that the U.S. stock market is the leading source of volatility transmissions since the changes in implied volatility in the U.S. stock market are transmitted to the Euro and Thai stock markets. Implied volatility indexes are used because they contain information about future realized volatility beyond that contained past volatility. Therefore, implied volatility indexes can be used as an underlying asset in a derivative market. The risk factors that can gauge the expectations of institutional investors are important to the key players in international stock markets. Given the dominance of institutional traders in the international derivative markets, the implied volatilities should reflect international traders’ sentiment. The findings in the present article give recent knowledge for portfolio managers because they need to know the degree of dependency across stock markets so that they can diversify more efficiently.

Keywords: stock index option prices; implied volatility; causality; impulse response functions; variance decompositions (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Implied volatility transmissions between Thai and selected advanced stock markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:6:y:2016:i:3:p:2158244016659318

DOI: 10.1177/2158244016659318

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