Investors Behavior under Changing Market Volatility
Journal
The Journal of Investing
ISSN
1068-0896
Type
journal article
Date Issued
2014-05-04
Author(s)
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.
Language
English
HSG Classification
contribution to practical use / society
Refereed
Yes
Publisher
Institutional Investor
Publisher place
New York, NY
Volume
23
Number
2
Start page
96
End page
113
Pages
18
Subject(s)
Eprints ID
225262
File(s)![Thumbnail Image]()
Name
13_13_Paraschiv et al_Investors Behavior.pdf
Size
1.59 MB
Format
Adobe PDF
Checksum (MD5)
c362c797833575a4d28353b4bbba3db8