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The New Zealand implied volatility index

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  • Bart Frijns
  • Alireza Tourani-Rad
  • Yajie Zhang

Abstract

This paper constructs an implied volatility index, the NZVIX, for the New Zealand stock market. Because there are no equity index options in New Zealand, we propose a new approach that uses stock options to construct an implied volatility index. Specifically, we use implied volatilities from four stock options to construct an implied volatility index for the NZX 15 Index. We find that the NZVIX has predictive power for future NZX 15 volatility and observe a significant negative relationship between NZVIX changes and NZX15 returns. Finally, we find a weak significant relation between lagged NZVIX changes and NZX 15 returns.

Suggested Citation

  • Bart Frijns & Alireza Tourani-Rad & Yajie Zhang, 2008. "The New Zealand implied volatility index," New Zealand Economic Papers, Taylor & Francis Journals, vol. 42(1), pages 103-125.
    • Handle: RePEc:taf:nzecpp:v:42:y:2008:i:1:p:103-125
    DOI: 10.1080/00779950809544415
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    References listed on IDEAS

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    1. GIOT, Pierre, 2002. "Implied volatility indices as leading indicators of stock index returns ?," LIDAM Discussion Papers CORE 2002050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Pierre Giot, 2003. "The information content of implied volatility in agricultural commodity markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(5), pages 441-454, May.
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    Cited by:

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    2. Pakorn Aschakulporn & Jin E. Zhang, 2021. "New Zealand whole milk powder options," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2201-2246, April.

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