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Volume 21, Number 2 / June 2017 , Pages 49-132
 
Multinational Finance Journal, 2017, vol. 21, no. 2, pp. 49-90
Prasenjit Chakrabarti , Indian Institute of Management Ranchi, India
Kiran Kumar Kotha , Indian Institute of Management Indore, India    Corresponding Author

Abstract:
This study investigates whether volatility demand information in the order flow of Indian Nifty index options impacts the magnitude of variance risk premium change. The study further examines whether the sign of variance risk premium change conveys information about realized volatility innovations. Volatility demand information is computed by the vega-weighted order imbalance. Volatility demand of options is classified into different categories of moneyness. The study presents evidence that volatility demand of options significantly impacts the variance risk premium change. Among the moneyness categories, volatility demand of the most expensive options significantly impacts variance risk premium change. The study also finds that positive (negative) sign of variance risk premium change conveys information about positive (negative) innovation in realized volatility.

Keywords : variance risk premium; volatility demand; model-free implied volatility; realized variance; options contract
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Multinational Finance Journal, 2017, vol. 21, no. 2, pp. 91-132
Slim Mseddi , Al Imam Mohammad Ibn Saud Islamic University, Saidi Arabia
Noureddine Benlagha , Qatar University, Qatar    Corresponding Author

Abstract:
This paper features an application of Diebold and Yilmaz's (2009) spillover index model to assess the impact of the global financial crisis on spillovers between the bank sectors in terms of both returns and volatility time series. The spillover investigation is performed on daily return data for Islamic and conventional banks in the Gulf Cooperation Council countries for the period 2005-2015. We use a dynamic conditional multivariate GARCH to directly model the time varying spillover effects among the studied time series. This study finds a strong bidirectional returns spillover between conventional banks and a very weak spillover from Islamic banks to conventional banks, so the transmission of shocks from Islamic banks to conventional banks is reduced. It also finds that the dependence between stock returns in an Islamic bank market structure is more strongly affected by the financial crisis than in a conventional bank market. Moreover, the volatility linkage is highly affected by the crisis in an Islamic context than that in a conventional bank system. Finally, using the DCC-GARCH model this study shows a high persistence in the time series of correlation among all GCC countries, except Bahrain, indicating that a long-run average of the correlation can be pushed away by shocks for a very long period. The empirical results are expected to have potentially important implications for improving the process of selection and allocation for domestic and international portfolios.

Keywords : financial crisis; islamic banks; spillover index; dependence; multivariate GARCH
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