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Expanding the Explanations for the Return–Volatility Relation

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  • Bakhtear Talukdar
  • Robert T. Daigler
  • A. M. Parhizgari

Abstract

We examine the return–volatility relation using three of the CBOE's recent indices. We employ more robust estimation techniques that account for the asymmetric relation between return and volatility. Our findings indicate that contributions of these indices to R-super-2 are surprisingly large (7.45–35.54%) when the observations are divided into deciles groups. The results further indicate that behavioral theories explain the return–volatility relation better than the fundamental theories. We use daily and high frequency data. The results are consistent across all data, though the high frequency data seem to provide more support for the behavioral theories. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:689–716, 2017

Suggested Citation

  • Bakhtear Talukdar & Robert T. Daigler & A. M. Parhizgari, 2017. "Expanding the Explanations for the Return–Volatility Relation," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(7), pages 689-716, July.
    • Handle: RePEc:wly:jfutmk:v:37:y:2017:i:7:p:689-716
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    Cited by:

    1. Jupeng Li & Xiaoli Yu & Xingguo Luo, 2019. "Volatility index and the return–volatility relation: Intraday evidence from Chinese options market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(11), pages 1348-1359, November.
    2. Yue Chen & Juan Lin & Ximing Wu, 2022. "Revisiting the return‐volatility relationship of exchange rates: New evidence from offshore RMB," Pacific Economic Review, Wiley Blackwell, vol. 27(3), pages 277-294, August.
    3. Zhang, Xinxin & Bouri, Elie & Xu, Yahua & Zhang, Gongqiu, 2022. "The asymmetric relationship between returns and implied higher moments: Evidence from the crude oil market," Energy Economics, Elsevier, vol. 109(C).
    4. Cheuathonghua, Massaporn & Padungsaksawasdi, Chaiyuth, 2024. "The volume-implied volatility relation in financial markets: A behavioral explanation," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    5. Chen, Xiaoyijing & Liu, Siyuan & Xu, Zailin & Yu, Mei, 2024. "Asymmetry in option implied volatility and yield: Evidence from China's ETF options market11Xiaoyijing Chen, PhD candidate. Research Interests: option pricing, financial derivatives. Siyuan Liu, maste," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).

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