SEASONALITY AND ASYMMETRIC CONDITIONAL VOLATILITY: AN ANALYSIS OF INDIAN VIX

Abstract

The study aims to understand the behavior of Indian Implied Volatility Index (Indian VIX) in terms of its seasonal anomalies, like day-of-the-week effect and month-of-the-year effect. The study examines the effect of options expiration dates on expected market volatility. The study also investigates the asymmetric relationship between Indian Implied Volatility and its underlying series Nifty 50 index returns. The empirical result confirms that the Indian VIX holds seasonal anomalies. The results explain that there is a significant positive Monday effect on expected market volatility. The month-of-the-year results reported that the corporate announcements have a significant impact on Indian VIX. The Regression estimates supported a strong negative correlation between Indian VIX and stock returns. The results of the study are important for portfolio managers, volatility traders and risk managers to price the options and to understand the exit and entry timing in the equity markets.