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Modeling US Stock Market Volatility-Return Dependence Using Conditional Copula and Quantile Regression

In: The Economics of the Global Environment

Author

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  • Terence D. Agbeyegbe

    (Hunter College and the Graduate Center, City University of New York)

Abstract

In this chapter, we examine the return-volatility relationship for some indices reported on exchanges in the United States of America. We utilize both linear quantile regression and copula quantile regression to evaluate the asymmetric volatility-return relationship between changes in the volatility index (VXD, VIX, VXO and VXN) and the corresponding stock index return series (DJIA, S&P 500, the S&P 100 and NASDAQ). The data period is from February 2, 2001 through December 31, 2012. The quantile copula models allow for inference at different quantiles of interest. We find, first, that the relationship between stock return and implied volatility depends on the quartile at which the relationship is being investigated. Second, we obtain results similar to those reported for European exchanges showing the existence of an inverted U-shaped relationship between stock return and implied volatility. This result was obtained even after controlling for changes in volatility of return using a GARCH(1, 1) filter.

Suggested Citation

  • Terence D. Agbeyegbe, 2016. "Modeling US Stock Market Volatility-Return Dependence Using Conditional Copula and Quantile Regression," Studies in Economic Theory, in: Graciela Chichilnisky & Armon Rezai (ed.), The Economics of the Global Environment, pages 597-621, Springer.
    • Handle: RePEc:spr:steccp:978-3-319-31943-8_26
    DOI: 10.1007/978-3-319-31943-8_26
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    Cited by:

    1. Fassas, Athanasios P. & Siriopoulos, Costas, 2021. "Implied volatility indices – A review," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 303-329.
    2. Badshah, Ihsan & Frijns, Bart & Knif, Johan & Tourani-Rad, Alireza, 2016. "Asymmetries of the intraday return-volatility relation," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 182-192.
    3. 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).
    4. Massaporn Cheuathonghua & Chaiyuth Padungsaksawasdi & Pattana Boonchoo & Jittima Tongurai, 2019. "Extreme spillovers of VIX fear index to international equity markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 33(1), pages 1-38, March.

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