Title: An investigation of return-volatility relationship using high-frequency VKOSPI data

Authors: Debasis Bagchi; Changjun Lee; Doojin Ryu

Addresses: Department of Management Studies, George College, Mollargate, Mahestala, Kolkata 700-141, India ' College of Business Administration, Hankuk University of Foreign Studies, Dongdaemun-Gu, Seoul, South Korea ' School of Economics, College of Business and Economics, Chung-Ang University, Dongjak-gu, Seoul 156-756, South Korea

Abstract: Most previous studies examine the relationship between stock market returns and volatility using low frequency data such as daily or weekly basis. In this study, using the high frequency intraday data, we expand the scope of prior studies to investigate the relationship of short-term changes of Korea's implied volatility index (VKOSPI; Volatility Index of KOSPI200) with short-term market return. We examine the short-term return-volatility relationship with regression analysis and vector autoregression (VAR) equations. The evidence predominantly points to a return-induced, asymmetric, return-volatility relationship. We also find that the asymmetric return is stronger for a high return (upper 10%) than for a low return (lowest 10%).

Keywords: asymmetric volatility; high frequency data; implied volatility index; vector autoregression; VAR; VKOSPI; stock market returns.

DOI: 10.1504/AAJFA.2013.054430

Afro-Asian Journal of Finance and Accounting, 2013 Vol.3 No.3, pp.258 - 273

Received: 11 Jun 2012
Accepted: 15 Oct 2012
Published online: 28 Jun 2014 *

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