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On the relationship between implied volatility index and equity index returns

Imlak Shaikh (Department of Management, Birla Institute of Technology & Science, BITS Pilani, Pilani, India)
Puja Padhi (Department of Humanities and Social Sciences, Indian Institute of Technology Bombay, Mumbai, India)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 11 January 2016




The purpose of this paper is to analyze the asymmetric contemporaneous relationship between implied volatility index (India VIX) and Equity Index (S & P CNX Nifty Index). In addition, the study also analyzes the seasonality of implied volatility index in the form of day-of-the-week effects and option expiration cycle.


This study employs simple OLS estimation to analyze the contemporaneous relationship among the volatility index and stock index. In order to obtain robust results, the analysis has been presented for the calendar years and sub-periods. Moreover, the international evidenced presented for other Asian markets (Japan and China).


The empirical evidences reveal a strong persistence of asymmetry among the India VIX and Nifty stock index, at the same time the magnitude of asymmetry is not identical. The results show that the changes in India VIX occur bigger for the negative return shocks than the positive returns shocks. The similar kinds of results are recorded for the Japan and China volatility index. Particularly, the analysis also supports that India VIX holds seasonality, on the market opening VIX observed to be at its high level, and on the subsequent days it remains low. The results on the options expiration unfold the facts that India VIX remains more normal on the day of expiration.

Practical implications

The asymmetric relation and seasonal patterns are quite useful to the volatility traders to price the financial assets when market trades in the high- and low-volatility periods.


There is a lack of studies of this kind in the context of emerging markets like India; hence, this is an attempt in this direction. The study provides an insight to the NSE to launch some derivative products (i.e. F & Os) on India VIX that can generate more liquidity in the market for the volatility traders.



Shaikh, I. and Padhi, P. (2016), "On the relationship between implied volatility index and equity index returns", Journal of Economic Studies, Vol. 43 No. 1, pp. 27-47.



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Copyright © 2016, Emerald Group Publishing Limited

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