RISK–RETURN RELATIONSHIP IN ASIAN, AMERICAN AND EUROPEAN STOCK MARKETS

Ruhee Mittal, Karam Pal Narwal () and Ved Pal Sheera ()
Additional contact information
Ruhee Mittal: Department of Management Studies, Rukmini Devi Institute of Advanced Studies, 2A & 2B, Phase-1, Madhuban Chowk, Outer Ring Road, Rohini, New Delhi 110085, Delhi, India
Karam Pal Narwal: Haryana School of Business, Guru Jambheshwar University of Science & Technology, NH-10, Rohtak Hissar Sirsa Road, Hisar 125001, Haryana, India
Ved Pal Sheera: Haryana School of Business, Guru Jambheshwar University of Science & Technology, NH-10, Rohtak Hissar Sirsa Road, Hisar 125001, Haryana, India

The Singapore Economic Review (SER), 2021, vol. 66, issue 05, 1397-1420

Abstract: The purpose of this study is to investigate the symmetric and asymmetric relationships between changes in implied volatility indices (VIs) and the market returns for Asian, American and European markets over a period of 10 years spanning from March 2009 to December 2019. In this study, the symmetric and asymmetric return–volatility relationships are examined using three different models, in which return and volatility are taken as dependent and independent variables and vice versa. The Granger casualty test is applied to study the lead–lag relation between return and volatility. The major findings of the study are as follows: firstly, there exists a contemporaneous inverse relationship between implied volatility indices and market returns of various international markets. Secondly, there exists an asymmetric volatility–return relation in the emerging markets (India and Japan). Thirdly, the contemporaneous returns produce a significant asymmetric impact on the changes in volatility index. This supports that the behavioral explanations, such as representativeness and affect heuristic, dominate the return–volatility relation. The empirical investigations provide evidence in favor of the fact that implied VIs play an efficient role in capturing the current perception of the risk. The implications of this kind of study for the investment community and regulatory bodies are rather multifaceted. This asymmetric relationship between return and volatility can be useful for volatility traders in determining the market direction during high- and low-volatility regimes. Hence investment in the future and option contracts based on these indices will help traders hedge against volatility in a single transaction.

Keywords: India volatility index; India VIX; asymmetries; Granger causality test; model-free volatility index (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590820500411
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:66:y:2021:i:05:n:s0217590820500411

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590820500411

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().