The Forecasting Power of the Different Volatility Indicators in Indian Capital Market

This research explores the predictive power of the India VIX (volatility index) in emerging markets from April 2009 to March 2011. The results of the study show that the models including both the volatility indicator and the option market information have a stronger predictive power. With respect to the trading information from different types of investors in option markets, the trading information from the foreign institutional investors in option markets demonstrates a significantly positive relationship with the stock market volatility. In addition, the results of this paper also reveal that the India VIX GARCH volatility forecasting and stock index options are a strong indicator of future stock market volatility. The GARCH outperforms the historical volatility and the VIX volatility forecast in assessing the activities of Indian capital market.