Abstract
The present study attempts to examine the scheduled macroeconomic announcement effects on the India VIX using OLS regression model and the EGARCH model. The empirical results show that the information content of macroeconomic news on report day and day after does not have significant influences on India VIX, except MCIR. Besides, the findings reveal no significant response of India VIX during one day before the scheduled news announcements. This is due to the fact that India VIX market is more uncertain before the declaration of the results of MCIR convention of RBI, Export, Import, Fiscal Deficit, GDP, IIP and Inflation (CPI/WPI). The study shows that investors do not need to consider the scheduled macroeconomic announcement except MCIR meeting day and one day after in the valuation of options pricing or financial planning.
Highlights
The impact of information releases on stock prices has been well documented in the financial economic literature rather than the impact on option prices
The empirical results show that the information content of macroeconomic news on report day and day after does not have significant influences on India Volatility Index (VIX), except Monetary and Credit Information Review (MCIR)
The findings reveal no significant response of India VIX during one day before the scheduled news announcements
Summary
The impact of information releases on stock prices has been well documented in the financial economic literature rather than the impact on option prices. One of the main challenges in options pricing is to understand the information contents that determine the volatility of asset prices. The renowned Black-Scholes-Merton option pricing model stated that call and put options pricing was reliant on the price of the underlying, strike price, risk free rate of interest, time to expiry and volatility. The market traders are conscious about these factors, except future volatility, at the time of shorting an option. The future volatility is unknown and subject to personal anxiety or fear of the option seller.
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