Investors’ Behavior under Changing Market Volatility
This paper analyzes the reaction of the S&P 500 returns to changes in implied volatility given by the VIX index, using a daily data sample from 1990 to 2012. We found that in normal regimes increases (declines) in the expected market volatility result in lower (higher) subsequent stock market returns. Thus, investors enter into selling positions upon a perception of increased risk for their equity investments, while they enter into long positions when they perceive an improved environment for those investments. However, for extreme regimes investors’ reaction to increasing risk is ambiguous. We found that VIX variation significantly influences investment strategies for holding periods up to one month. Additionally we propose an investment rule for short-term oriented investors.
|Date of creation:||Jul 2013|
|Contact details of provider:|| Phone: +41 71 243 40 11|
Fax: +41 71 243 40 40
Web page: http://www.unisg.ch/de/universitaet/schools/finance
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:usg:sfwpfi:2013:13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geraldine Frei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.