ETD

• implied volatility
• vix
• volatility smile

The objective of the thesis is to examine the relationship between implied volatility and future stock market returns. The study analyses whether the CBOE Volatility Index (VIX), as a measure of implied volatility, the volatility skew, as a measure of volatility smile, and the Variance Risk Premium (VRP) contain predictive information about future returns. The sample period covers January 2000 to December 2025, using monthly data.
The theoretical framework is based on option pricing theory, including implied volatility, the volatility smile and the variance risk premium. Moreover, three hypotheses are tested to examine the relationship between the three option-implied measures and future stock returns through Ordinary Least Squares (OLS) regressions and robustness checks using Newey-West heteroskedasticity and autocorrelation consistent standard errors. The empirical results show that neither the VIX, the volatility skew nor the variance risk premium significantly predicts or affects future stock market returns. The estimated coefficient from the OLS and the robustness tests are not statistically significant and the explanatory power of the models remains very low.
Overall, the results are consistent with the Efficient Market Hypothesis, which states that information contained in option-implied measures is immediately incorporated into asset prices. As a result, these measures do not provide reliable predictive information about future stock market returns over the sample period.