Volatility index is a measure of markets expectation of volatility over the near-term. It is a forward looking instrument and depicts the expected market volatility over the next 30 days. The constant ups and downs in the financial markets are a cause of concern for most investors. Thus, the volatility index helps them to keep track of market volatility and guide them in their investment decisions. The objective of this paper is to understand the dynamics of linkages between the volatility indices of US (VIX), Germany (VDAX), India (VIX), South Korea (VKOSPI) and China (VXFXI). The VAR model with impulse response function and variance decomposition analysis has been used to understand the linkage dynamics. The results suggest that the US VIX is the most influential index. Therefore, this index should be closely observed by overseas regulatory authorities as early warning signal for future turbulence in their domestic markets. The results for the Indian VIX reveal that there is a moderate level of influence of the US index on it. Further, the Indian VIX seems to be integrated minimally with its Asian equivalents

The study of volatility spillovers and transmission between international stock markets has assumed greater importance as it is essential to understand the mechanism of market integration, economic cycles and financial crises. Market integration in terms of implied volatility spillovers has been an issue of growing interest in recent times especially in the aftermath of events like the Asian and Russian crises at the end of 1990s, the subprime crises in 2008, eurozone crises and Chinese crises in 2015.

Implied volatility is a forward looking measure. It is the volatility imbedded in the option prices and acts as a futuristic measure of expected volatility and helps in the assessment of risk over a given period of time (Stewart, 1995). Thus, as it is revealed in all the previous literature, the information content of implied volatility is far superior over ex post, i.e., historical measures of volatility. The Chicago Board of Options Exchange (CBOE) was the first to introduce implied volatility index in 1993. It was based on the S&P 100 index options, but in the year 2003, the computation methodology of VIX was revised and the new VIX was based on the S&P 500 index options. Soon the VIX became a benchmark for measuring volatility in the US market. Following the footsteps of CBOE, many financial markets soon introduced their own volatility index (Narwal et al., 2011). In India, the IVIX was introduced by NSE in the year 2008. It was based on the methodology of the US VIX. The volatility index is often termed as ‘the investor fear gauge’ as it indicates what volatility investors expect to see in the next 30 days. Further, a negative contemporaneous relationship is observed between the underlying index and the volatility index in different financial markets. Thus, the volatility index can be considered as the world’s premier barometer of investor sentiments and market volatility (Narwal et al., 2011).

Financial Risk Management Journal, Volatility Indices, (VIX), Germany (VDAX), India (VIX), South Korea (VKOSPI), The Chicago Board of Options Exchange (CBOE), International Comparison.