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Dynamics of the Relationship between Implied Volatility Indices and Stock Prices Indices: The Case of European Stock Markets

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  • Rouetbi Emna
  • Chaabani Myriam

Abstract

This paper examines the relationship between implied volatility indices and stock price indices in the case of five European market : Euro zone, France, Germany, Switzerland and the United Kingdom for the period from January 2010 to March 2015. To achieve that, two empirical models were estimated. Using GARCH modelling, our results show clearly that implied volatility indices contain relevant information concerning future stock market volatility, while this information is still insufficient in predicting the latter. A multiple linear regression procedure confirmed the existence of a strong negative and asymmetrical relationship between the implied volatility indices and stock market returns for three studied markets.

Suggested Citation

  • Rouetbi Emna & Chaabani Myriam, 2017. "Dynamics of the Relationship between Implied Volatility Indices and Stock Prices Indices: The Case of European Stock Markets," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(1), pages 52-62.
    • Handle: RePEc:asi:aeafrj:v:7:y:2017:i:1:p:52-62:id:1539
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    Cited by:

    1. Yutaka Kurihara & Shinichiro Maeda, 2019. "Do Volatility Indexes and Historical Volatility Influence Stock Prices? The Japanese Case," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(6), pages 1-6.
    2. Tuncer Yılmaz & Bülent Yıldız, 2022. "Yatırımcıların Risk İştahı Endeksi İle Korku Endeksleri Arasındaki İlişki: Türkiye’de ARDL İle Ampirik Bir Uygulama," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 7(3), pages 646-676.

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