Asymmetric and Negative Return-Volatility Relationship: The Case of the VKOSPI
Qian Han, Biao Guo, Doojin Ryu, Robert I. Webb*
Investment Analyst Journal
#002159 20131014 (published)
KOSPI 200 index options are the most actively traded derivative contracts in the world. And, unlike most other active option markets, trading is dominated by individual investors. This paper examines the short-term relationship between stock market returns and implied volatility in the Korean financial market using high frequency data on the recently introduced volatility index (VKOPSI) implied by the KOSPI 200 options. We find a strong asymmetric and negative return-volatility relationship both at the daily and intraday level, which cannot be explained by either leverage or volatility feedback hypotheses on the asymmetric volatility phenomenon. We also find that the asymmetric relationship is more pronounced for extremely negative stock market returns. We conjecture that behavioral factors better explain the observed asymmetric return-volatility relationship.

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