Integrating Volatility Shocks Into Financial Management Methodologies: Evidence From US Equity

Ismailov Dilshod Anvarjonovich^1,*

¹Researcher of Tashkent State, University of Economics, Uzbekistan
Email: d.ismailov@tsue.uz

Abstract

This study examines the relationship between implied market volatility and US equity market excess returns over the period August 2020 to December 2024. Using monthly data from the Fama–French Data Library and the CBOE Volatility Index (VIX), the analysis distinguishes between the effects of absolute VIX levels and monthly changes in VIX (ΔVIX). Results indicate that while high volatility levels show a weak, statistically insignificant relationship with returns, volatility shocks (ΔVIX) exert a strong and significant negative effect, with a one-point increase in ΔVIX linked to a 0.81 percentage point drop in monthly excess returns. The findings support integrating ΔVIX into investment appraisal, risk management, and tactical asset allocation frameworks to improve resilience during periods of market stress.

Keywords: Volatility shocks; VIX, ΔVIX; Investment management; Financial risk; US equity markets; Excess returns; Market uncertainty