The Seasonal Anomalies in the Investors’ Fear Gauge index

Abstract

This study examines the seasonal anomalies in the volatility index also known as Investors' fear-gauge-index. Unlike the anomalies reported for the stock indices, we also document presence of pronounced day-of-the-week, options expiration and month-of-the-year anomalies for the implied volatility index. The sample consists of daily closing values of India VIX ranging from November, 2007 to October, 2013. We employ the dummy ordinary least squares (DOLS) in a conditional volatility framework to analyze the various seasonal anomalies prevailing in the Indian securities market. The novel aspect of the work is that we examine volatility index that is associated with investors'' fear and stock returns, and provide some insights on the application of EGARCH vs. GARCH model to analyze the information asymmetry. The empirical results show that Monday effect is present in the Indian securities market followed by options expiration effect and October and December effects. The practical implications of these anomalies hold importance to the informed trader, signal towards the market efficiency and abnormal capital gain resulting out of stylized patters of implied volatility.