Skip to main content

Modelling the risk-return relation for the S&P 100: The role of VIX

Kanas, Angelos (2012) Modelling the risk-return relation for the S&P 100: The role of VIX. Economic Modelling, 29 (3). pp. 795-809. ISSN 0264-9993. (doi:10.1016/j.econmod.2011.10.010) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://dx.doi.org/10.1016/j.econmod.2011.10.010

Abstract

A significantly positive risk-return relation for the S&P 100 market index is detected if the implied volatility index (VIX) is allowed for as an exogenous variable in the conditional variance equation. This result holds for 4 alternative GARCH specifications, irrespective of the conditional distribution, and regardless of whether the conditional mean equation includes a constant term. This finding is robust to sub-samples, and to using VIX innovations to control for dividend yield and trading volume effects. Monte Carlo evidence suggests that if VIX is not included, the risk-return relation is more likely to be negative or weak, in line with several previous studies. If VIX is included, the distribution of the risk-return parameter has more than 99% of its mass in the area of positive values. We conclude that VIX carries important forward-looking information which improves the precision of the conditional variance estimation and, subsequently, reveals a significantly positive relation. © 2011.

Item Type: Article
DOI/Identification number: 10.1016/j.econmod.2011.10.010
Additional information: Unmapped bibliographic data: AD - Department of Economics, University of Piraeus, Greece [Field not mapped to EPrints] JA - Econ. Model. [Field not mapped to EPrints]
Uncontrolled keywords: GARCH-M, Monte Carlo, Risk-return relation, S&P 100, VIX
Subjects: H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Tracey Pemble
Date Deposited: 22 May 2014 11:15 UTC
Last Modified: 29 May 2019 12:36 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/41128 (The current URI for this page, for reference purposes)
  • Depositors only (login required):