The Implied Volatility Analysis: The South African Experience

TL;DR

This paper examines South African implied volatility, specifically SAVI, analyzing its informational content, relationships with other indices, and market transmission during different periods, providing insights into market uncertainty and behavior.

Contribution

It offers a detailed empirical analysis of SAVI's informational content and its relationship with other volatility indices, comparing results across different markets and periods.

Findings

Significant negative relationship between returns and volatility.

SAVI's behavior aligns with other global volatility indices.

Market transmission links between SAVI, VIX, and VXN are examined.

Abstract

In this paper, we analyse the South African implied volatility in various setting. We assess the information content in SAVI implied volatility using daily markets data. Our empirical application is focused on the FTSE/JSE Top 40 index and we emphasize our models performance in distinct sub-periods. Our results are compared with VIX/VXN and S&P 500/NASDAQ 100 data in some points which are taken as our benchmark. We find a significant negative relationship between returns and volatility, in line with the results found in other markets. Finally, the link between SAVI, VIX and VXN are undertaken to examine the equity market transmission with respect to uncertainty.