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Forecasting of India VIX as a Measure of Sentiment

Author

Listed:
  • Arindam Banerjee

    (Birla Institute of Management Technology, Greater Noida, India.)

Abstract

The India VIX represents the sentiment of traders in the Indian market, so by forecasting the future value of India VIX, we get a feel for investor sentiment in future. The objective of this study is to fit a forecasting model on India VIX using auto regressive integrated moving average (ARIMA). The model would be useful in having a glimpse of investor mood in near future. This is probably the first of its kind study based on Indian market. The motivation of this study lies not only on the pervasive agreement that the VIX is a barograph of the general marketplace sentiment as to what concerns investors' risk appetite, but also on the fact that there are many trading strategies that depend on the VIX index for speculative and hedging determinations. The study found ARIMA (1-0-2) forecasting model on VIX produces better forecasting result. We also validated the model with an out-of-sample dataset and found the model reliable.

Suggested Citation

  • Arindam Banerjee, 2019. "Forecasting of India VIX as a Measure of Sentiment," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 268-276.
    • Handle: RePEc:eco:journ1:2019-03-28
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    References listed on IDEAS

    as
    1. Robert B. Durand & Dominic Lim & J. Kenton Zumwalt, 2011. "Fear and the Fama‐French Factors," Financial Management, Financial Management Association International, vol. 40(2), pages 409-426, June.
    2. Fernandes, Marcelo & Medeiros, Marcelo C. & Scharth, Marcel, 2014. "Modeling and predicting the CBOE market volatility index," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 1-10.
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    More about this item

    Keywords

    VIX; India; Sentiment; Forecasting; ARIMA;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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