Title: A causal analysis of fear index and stock indices: evidence from India

Authors: Ankit Sharma; Vivek Sharma

Addresses: Chandragupt Institute of Management Patna, Patna, Bihar, 800001, India ' Prestige Institute of Management and Research, 2, Education & Health Sector Scheme 54, Indore, Madhya Pradesh, 452010, India

Abstract: This study investigates the causal relationship between the fear index (VIX) and stock indices. This study is based in the Indian context and uses sectoral stock indices, in contrast to earlier studies that were based in the USA or European context and used the broad market index. The correlation analysis reveals that the VIX and sectoral stock returns are negatively correlated. Unit root tests show that four sectors are stationary at level data and that all the time series become stationary at the first difference. The autoregressive distributed lag (ARDL) method is used in the study to investigate the relationship. The purpose of ARDL, a specific type of co-integration analysis, is to investigate the relationship between time series that become stationary at different orders. The ARDL test confirms the unidirectional causal relationship that flows from stock indices to the VIX. In addition, we discovered that two stock indices exhibit bi-directional causality.

Keywords: Nifty 50; Nifty sectoral indices; volatility index; VIX; India VIX; ARDL test; India.

DOI: 10.1504/AAJFA.2024.142111

Afro-Asian Journal of Finance and Accounting, 2024 Vol.14 No.6, pp.837 - 853

Received: 25 Jul 2021
Received in revised form: 01 Sep 2022
Accepted: 05 Oct 2022
Published online: 08 Oct 2024 *

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