Dynamic Relationships Between NASDAQ and CBOE VIX: A Time-Series Analysis

This study examines the dynamic interactions between the NASDAQ Composite Index and the Chicago Board Options Exchange Volatility Index (CBOE VIX) from April 1, 2019, to March 31, 2024. Employing advanced time-series methodologies, including Granger causality tests, GARCH modelling, and impulse response analysis, the research explores the lead-lag relationships and volatility spillovers between these indices during diverse market conditions. The findings reveal a significant bidirectional relationship, with the VIX often serving as a leading indicator for NASDAQ movements, particularly during periods of heightened market uncertainty. GARCH models highlight the presence of volatility clustering in both indices, while impulse response analysis demonstrates the magnitude and duration of shocks between the VIX and NASDAQ. These insights are complemented by correlation analysis, which underscores the evolving nature of their interaction across different market environments. This research contributes to understanding volatility dynamics in financial markets, providing actionable insights for investors, policymakers, and risk managers. By highlighting the predictive capacity of the VIX for NASDAQ behaviour, the study underscores the importance of volatility indices as tools for informed decision-making and market analysis.