Investors Behavior under Changing Market Volatility

Item Type Journal paper
Abstract This paper analyzes the reaction of the S&P 500 returns to changes in implied volatility given by the VIX index, using a daily data sample from 1990 to 2012. We found that in normal regimes increases (declines) in the expected market volatility result in lower (higher) subsequent stock market returns. Thus, investors enter into selling positions upon a perception of increased risk for their equity investments, while they enter into long positions when they perceive an improved environment for those investments. However, for extreme regimes investors' reaction to increasing risk is ambiguous. We found that VIX variation significantly influences investment strategies for holding periods up to one month. Additionally we propose an investment rule for short-term oriented investors.
Authors Daviou, Agustin & Paraschiv, Florentina
Journal or Publication Title The Journal of Investing
Language English
Subjects business studies
HSG Classification contribution to practical use / society
Refereed Yes
Date 4 May 2014
Publisher Institutional Investor
Place of Publication New York, NY
Volume 23
Number 2
Page Range 96-113
Number of Pages 18
ISSN 1068-0896
Publisher DOI
Depositing User Prof. Dr. Florentina Paraschiv
Date Deposited 28 Aug 2013 15:19
Last Modified 20 Jul 2022 17:17


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Daviou, Agustin & Paraschiv, Florentina (2014) Investors Behavior under Changing Market Volatility. The Journal of Investing, 23 (2). 96-113. ISSN 1068-0896

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