The Greek Implied Volatility Index: Construction and Properties

Abstract

There is a growing literature on implied volatility indices in developed markets. However, no research has been conducted in the context of emerging markets. In this paper, an implied volatility index (GVIX) is constructed for the fast developing Greek derivatives market. Next, the properties of GVIX are explored. In line with earlier results, GVIX can be interpreted as a gauge of the investor's sentiment. In addition, we find that the underlying market can forecast the future movements of GVIX. However, the reverse relationship does not hold. Finally, a contemporaneous spillover between GVIX, and the US volatility indices VXO and VXN is detected.

Keywords: Granger causality tests, implied volatility indices, implied volatility spillover, volatility derivatives

JEL Classification: G10, G11, G13, G15