The volatility index of the Chicago Board Options Exchange (VIX) was the first to be established, and it has given rise to international imitations worldwide as it is considered to be a barometer of investor fear. Starting from this volatility index, the aim of this paper is threefold. By adopting the VIX methodology, we construct a volatility index for three European countries (Austria, Finland and Spain) which currently do not provide this kind of market information for investors. Second, we investigate the properties of various volatility indices. In particular, we test their ability to act as fear indicators and as predictors of future returns. Moreover, we seek to cast light on the term structure of the proposed volatility indices, by computing spot and forward implied volatility indices for different times to maturity (30, 60 and 90 days). Our results indicate that volatility indices are useful not only for investors to improve their trading decisions, but also for policy-makers to choose the appropriate economic measures to promote stability in the market.
Designing volatility indices for Austria, Finland and Spain / Campisi, G.; Muzzioli, S.. - In: FINANCIAL MARKETS AND PORTFOLIO MANAGEMENT. - ISSN 1934-4554. - 35:3(2021), pp. 369-455. [10.1007/s11408-021-00381-9]