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On the Linkages among Ex-ante and Ex-post Volatility: Evidence from NSE Options Market (India)

Author

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  • Imlak Shaikh

    (Imlak Shaikh is PhD Scholar at the Department of Humanities and Social Sciences, IIT, Bombay. E-mail: imlak786@gmail.com)

  • Puja Padhi

    (Puja Padhi is Assistant Professor at the Department of Humanities and Social Sciences, IIT, Bombay. E-mail: pujapadhi@iitb.ac.in)

Abstract

This article investigates the cointegration level, and changes in the existence and direction of causality among volatilities. Vector autoregressive (VAR) model enables us to conduct Granger-causality and impulse response analysis, and determine the pattern of causality. The empirical findings uncover that ex-ante volatility best impounds the market-wide information to explain the ex-post volatility. Vector autoregression results make clear that unidirectional causality exists among ex-ante and ex-post volatilities. Impulse response analysis explains that realized volatility declines significantly initially in the first two periods and remains constant for all other periods. Findings, emphasizes that implied volatility is more informative on volatility forecasting, useful for successful volatility traders and pricing of options.

Suggested Citation

  • Imlak Shaikh & Puja Padhi, 2013. "On the Linkages among Ex-ante and Ex-post Volatility: Evidence from NSE Options Market (India)," Global Business Review, International Management Institute, vol. 14(3), pages 487-505, September.
    • Handle: RePEc:sae:globus:v:14:y:2013:i:3:p:487-505
    DOI: 10.1177/0972150913496866
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    References listed on IDEAS

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    2. Zouhaier Dhifaoui, 2022. "Determinism and Non-linear Behaviour of Log-return and Conditional Volatility: Empirical Analysis for 26 Stock Markets," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 69-94, June.
    3. Puja Padhi & Imlak Shaikh, 2014. "On the relationship of implied, realized and historical volatility: evidence from NSE equity index options," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 15(5), pages 915-934, November.

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