The determinants of India's implied volatility index

Abstract

This study examines the determinants of India's implied volatility index (VIX). The factors considered are Purchasing Managers Index (PMI), Business Confidence Index (BCI), Net activity of Foreign Institutional Investors (FII) and Net activity of Domestic Institutional Investors (DII). In this study Granger causality is used to find whether these factors cause IndiaVIX. This study confirms that only BCI has significant and positive impact with IndiaVIX and other factors such as PMI, FII and DII do not have any significant impact on India VIX. The results show that FII has a significant and negative impact on DII and hence these two factors do not have a significant impact on IndiaVIX.