A first look at the properties of India's volatility index

Purpose - The purpose of this paper is to examine the statistical properties of the volatility index of India,India Vix(Ivix), its relationship with the Indian stock market and its predictive power for forecasting future variance. Further, the paper examines the volatility transmission between India and developed markets. Design/methodology/approach - The study uses quantile regression and VAR techniques to examine the empirical issues. Findings - The results of the study show that Ivix returns are negatively related to stock market returns and the leverage effect is only significant around the middle of the joint distribution. The asymmetric response of Ivix is also not observed in the left tail and is significant again around the centre of the distribution. Monthly volatility forecasts obtained from Ivix contain important information about future market volatility. Finally, overnight volatility movements from the US market have significant effect on the Indian market's volatility and transmission in opposite direction was not observed. Practical implications - If Ivix is included in a stock portfolio when the market moves up, Ivix may not fall significantly, consequently, the portfolio returns are not negatively effected. But, when market declines sharply, i.e. for large losses, Ivix may not move up significantly in the opposite direction, thereby not providing the much‐needed insurance to the portfolio returns. But for normal/average market declines, volatility derivatives on Ivix may be useful as portfolio insurance tools. Originality/value - The paper is novel in employing quantile regression methodology to examine the empirical relationships of a volatility index. Volatility spillovers between emerging and developed markets are studied using volatility indices that areex ante.