Negative Asymmetric Relationship between VKOSPI and KOSPI 200

Stock market volatility shows a negative asymmetric relationship with returns. Various asymmetric GARCH models are developed to accommodate this volatility asymmetry, but they are subject to estimation errors. Fortunately, the Korea Exchange introduced model-free market participants expected volatility index, VKOSPI. In this article the magnitude of the Korean stock market volatility asymmetry is estimated using the KOSPI 200 index and VKOSPI for the sample period. Generalized autoregressive conditional heteroskedasticity (GARCH) models and the Volatility index of KOSPI 200 together show the volatility asymmetry and declining market phase presents stronger volatility asymmetry. The KOSPI 200 index returns are categorized by negative and positive return partitions to explore how asymmetric the volatility is. As expected, extreme negative return category presents stronger volatility asymmetry.