Uncovering a positive risk-return relation: the role of implied volatility index

Uncovering a positive risk-return relation: the role of implied volatility index We report empirical evidence suggesting a strong and positive risk-return relation for the daily S&P 100 market index if the implied volatility index is included as an exogenous variable in the conditional variance equation. This result holds for alternative GARCH specifications and conditional distributions. Monte Carlo evidence suggests that if implied volatility is not included, whilst is should be, the risk-return relation is more likely to be negative or weak. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Uncovering a positive risk-return relation: the role of implied volatility index

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Publisher
Springer US
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-012-0317-9
Publisher site
See Article on Publisher Site

Abstract

We report empirical evidence suggesting a strong and positive risk-return relation for the daily S&P 100 market index if the implied volatility index is included as an exogenous variable in the conditional variance equation. This result holds for alternative GARCH specifications and conditional distributions. Monte Carlo evidence suggests that if implied volatility is not included, whilst is should be, the risk-return relation is more likely to be negative or weak.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Nov 1, 2012

References

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