Review of Quantitative Finance and Accounting

, Volume 42, Issue 1, pp 159–170 | Cite as

Uncovering a positive risk-return relation: the role of implied volatility index

  • Angelos Kanas
Original Research


We report empirical evidence suggesting a strong and positive risk-return relation for the daily S&P 100 market index if the implied volatility index is included as an exogenous variable in the conditional variance equation. This result holds for alternative GARCH specifications and conditional distributions. Monte Carlo evidence suggests that if implied volatility is not included, whilst is should be, the risk-return relation is more likely to be negative or weak.


S&P 100 Implied volatility index GARCH-M Risk-return relation 

JEL Classification

G12 C22 


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of PiraeusPiraeusGreece

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