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Implied Volatility Transmissions Between Thai and Selected Advanced Stock Markets

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  • Supachok Thakolsri
  • Yuthana Sethapramote
  • Komain Jiranyakul

Abstract

This article investigates the impacts of changes in the U.S.-implied volatility on the changes in implied volatilities of the Euro and Thai stock markets. For that purpose, volatilities implicit in stock index option prices from the United States, Euro, and Thai stock markets are analyzed using the Standard Granger Causality Test, impulse response analysis, and variance decompositions. The results found in this study suggest that the U.S. stock market is the leading source of volatility transmissions since the changes in implied volatility in the U.S. stock market are transmitted to the Euro and Thai stock markets. Implied volatility indexes are used because they contain information about future realized volatility beyond that contained past volatility. Therefore, implied volatility indexes can be used as an underlying asset in a derivative market. The risk factors that can gauge the expectations of institutional investors are important to the key players in international stock markets. Given the dominance of institutional traders in the international derivative markets, the implied volatilities should reflect international traders’ sentiment. The findings in the present article give recent knowledge for portfolio managers because they need to know the degree of dependency across stock markets so that they can diversify more efficiently.

Suggested Citation

  • Supachok Thakolsri & Yuthana Sethapramote & Komain Jiranyakul, 2016. "Implied Volatility Transmissions Between Thai and Selected Advanced Stock Markets," SAGE Open, , vol. 6(3), pages 21582440166, July.
  • Handle: RePEc:sae:sagope:v:6:y:2016:i:3:p:2158244016659318
    DOI: 10.1177/2158244016659318
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    References listed on IDEAS

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    Cited by:

    1. Supachok Thakolsri & Yuthana Sethapramote & Komain Jiranyakul, 2016. "Relationship of the Change in Implied Volatility with the Underlying Equity Index Return in Thailand," Economic Research Guardian, Weissberg Publishing, vol. 6(2), pages 74-86, December.

    More about this item

    Keywords

    stock index option prices; implied volatility; causality; impulse response functions; variance decompositions;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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