Dynamics of Volatility Spillovers: Evidence from Implied Volatility Indexes to Conventional and Green Equities in the Indian Context

Abstract

Green investments are considered crucial for achieving inclusive and sustainable economic growth, necessitating profitability for companies
offering eco-friendly products. However, commodity price fluctuations can impact their profitability. This research investigates volatility transmission between the implied volatility indexes with traditional and green investments in the Indian market. Employing the dynamic conditional correlationgeneralized autoregressive conditional heteroskedasticity (DCC-GARCH) model, we analyze daily data from Nov 2012 to Oct 2023. Results suggest that there has been a strong and persistent spillover effect among these financial assets, as the joint values for all pairs are very high and statistically significant. This implies a strong positive correlation between the volatility of the implied volatility indexes with traditional and green investment indexes and suggests that when the implied volatility index rises, the volatility of green investments also tends to rise, and vice versa. The study’s findings have implications for both investment strategies and policy decisions.