The information content in a volatility index for Spain

• Maria T. Gonzalez-Perez ^[1] ; Alfonso Novales ^[2]
  1. [1] Northwestern University

     Northwestern University

     Township of Evanston, Estados Unidos

     
  2. [2] Universidad Complutense de Madrid

     Universidad Complutense de Madrid

     Madrid, España

     
• Localización: SERIEs : Journal of the Spanish Economic Association, ISSN 1869-4195, Vol. 2, Nº. 2, 2011, págs. 185-216
• Idioma: inglés
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• Resumen

  • A model-free methodology is used for the first time to estimate a daily volatility index (VIBEX-NEW) for the Spanish financial market. We use a public data set of daily option prices to compute this index and show that daily changes in VIBEX-NEW display a negative, tight contemporaneous relationship with IBEX daily returns, contrary to other common volatility indicators, as an implied volatility indicator or a GARCH(1,1) conditional volatility model. This relationship is approximately symmetric to the sign on VIBEX-NEW changes and asymmetric to the IBEX-35 returns sign, which make it clearly a suitable volatility index for the Spanish stock market. We also examine the relationship between current VIBEX-NEW and future IBEX-35 volatility. Our results suggest that VIBEX-NEW can be used to produce IBEX-35 volatility forecasts at least as good as historical and conditional volatility measures. A feasible volatility correction methodology is proposed to achieve it.