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Implementing Intraday Model-Free Implied Volatility for Individual Equities to Analyze the Return–Volatility Relationship

Author

Listed:
  • Martin G. Haas

    (Department of Corporate Management and Economics, Zeppelin University Am Seemooser Horn 20, 88045 Friedrichshafen, Germany)

  • Franziska J. Peter

    (Department of Corporate Management and Economics, Zeppelin University Am Seemooser Horn 20, 88045 Friedrichshafen, Germany)

Abstract

We implement the VIX methodology on intraday data of a large set of individual equity options. We thereby consider approaches based on monthly option contracts, weekly option contracts, and a cubic spline interpolation approach. Relying on 1 min, 10 min, and 60 min model-free implied volatility measures, we empirically examine the individual equity return–volatility relationship on the intraday level using quantile regressions. The results confirm a negative contemporaneous link between stock returns and volatility, which is more pronounced in the tails of the distributions. Our findings hint at behavioral biases causing the asymmetric return–volatility link rather than the leverage and volatility-feedback effects.

Suggested Citation

  • Martin G. Haas & Franziska J. Peter, 2024. "Implementing Intraday Model-Free Implied Volatility for Individual Equities to Analyze the Return–Volatility Relationship," JRFM, MDPI, vol. 17(1), pages 1-19, January.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:1:p:39-:d:1321582
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    References listed on IDEAS

    as
    1. Mark Britten‐Jones & Anthony Neuberger, 2000. "Option Prices, Implied Price Processes, and Stochastic Volatility," Journal of Finance, American Finance Association, vol. 55(2), pages 839-866, April.
    2. Tim Bollerslev & Julia Litvinova & George Tauchen, 2006. "Leverage and Volatility Feedback Effects in High-Frequency Data," Journal of Financial Econometrics, Oxford University Press, vol. 4(3), pages 353-384.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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