Asymmetric Return-Volatility Relation, Volatility Transmission And Implied Volatility Indexes

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Executive Summary

The purpose of this paper is twofold: First, to investigate the asymmetric return-volatility phenomenon with newly adapted robust volatility indexes VIX, VXN, VDAX and VSTOXX. Second, the authors examine the dynamic implied volatility transmissions across the implied volatility indexes using techniques such as Granger causality, generalized impulse response function and variance decomposition. They find pronounced negative and asymmetric return-volatility relationships between each volatility index and its corresponding stock market index. The VIX volatility index presents the highest asymmetric return-volatility relationship followed by the VSTOXX, VDAX and VXN volatility indexes, respectively.

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