Thailand Volatility Index based on SET50 Index Options and Its Investment Applications
Post by MSF Chula at Sunday, 10 January 2021 05:50 PM

This paper employs the popular CBOE Volatility Index (VIX) approach to construct a new measure of Thailand stock market volatility called Thailand Volatility Index (TVIX) based on the SET50 Index options. Then, it further examines their statistical properties. The contemporaneous relationship between TVIX and SET returns shows that the change in TVIX is negatively significant with SET returns which is the same property of VIX in other countries. The paper also found that TVIX can reflect investor sentiment and future realized volatility and it shows good performance to forecast future volatility especially, in short term volatility horizons. Lastly, this study explores investment strategies using TVIX based on the underlying hypotheses about investor behavior toward growth and value stocks. During high uncertainty period, the investor will likely shift investments toward safer, larger in market capitalization and lower price-to-book, stocks to reduce exposure toward market risk. Strategic investment portfolios are constructed accordingly, and portfolio returns are tested using the past market data. This research also uses TVIX along with VIX in order to examine the effect on Thailand stock market returns and volatility. The result comes out that TVIX subsumes VIX in term of volatility forecasting power but it has no evidence that TVIX has more effect than VIX on contemporaneous relationship with SET returns. Because the paper covers various aspects of TVIX, the results may be useful for both academics and practitioners to understand more about the price volatility of stock market in Thailand.

Last updated at Sunday, 10 January 2021 05:50 PM