Affiliation:
1. Croatian National Bank, Croatia
Abstract
This chapter analyzes several model specifications of the asymmetric relationship between the implied volatility index (VIX) and return series for the CESEE (Central-Eastern and South-Eastern European) stock markets. Several different country-origin VIX indices are examined (US, emerging markets, Russian, and EU) to analyze which one has the best forecasting ability of the return series. Based on daily data analysis and six different model specifications, resulting in 240 models in total, asymmetric and non-linear relationships were found between the selected VIX and return series. As the results differ over all stock market return series, international investors are advised to consider such results when making decisions about their portfolio selection.