Effect of the Launch of Nifty Weekly Options on the Relationship between Nifty and India VIX
Subhiksha Kannan1, Peddina Sripriya2, Drishty Wadhwani3, Rohit Choraria4
1Subhiksha Kannan, Final year BBA F&A Student, Department of Professional Studies, Christ (Deemed to be University), Bengaluru, Karnataka.
2Peddina Sripriya*, Final year BBA F&A Student, Department of Professional Studies, Christ (Deemed to be University), Bengaluru, Karnataka.
3Drishty Wadhwani, Final year BBA F&A Student, Department of Professional Studies, Christ (Deemed to be University), Bengaluru, Karnataka
4CA Rohit Choraria, Adjunct faculty, Department of Professional Studies, Christ (Deemed to be University), Bengaluru, Karnataka.
Manuscript received on April 02, 2020. | Revised Manuscript received on April 19, 2020. | Manuscript published on May 30, 2020. | PP: 357-371 | Volume-9 Issue-1, May 2020. | Retrieval Number: A1418059120/2020©BEIESP | DOI: 10.35940/ijrte.A1418.059120
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© The Authors. Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: This paper examines the impact of the introduction of weekly expiry on Nifty options on the relationship between Nifty and India VIX. It demonstrates that the introduction of weekly expiration on Nifty options resulted in a significant decrease in the association of market returns and volatility. This decrease was visible across options-based volatility metrics like India VIX and non-options-based volatility metrics like Annualized Volatility of Futures and Underlying asset (Nifty Index). This study finds that shorter expiries and resultant larger volumes lower the correlation between market performance and various volatility indicators. This is done by testing the effect of Nifty volumes in the Options segment as a moderator variable in the relationship between Nifty and India VIX. In other words, an increase in India VIX now indicates a lower decline in Nifty than it did earlier. This paper also indicates that the inverse must also be true. Longer expiries and comparatively lower volumes contributed to a higher negative correlation between Nifty and India VIX. By comparing correlations in the periods before and after the introduction of weekly expiry on Nifty options, we measure the impact of volumes and expiration time.
Keywords: India VIX, Nifty, Negative correlation, Volatility, Weekly expiry options.
Scope of the Article: Neural Information Processing