VIX Exchange Traded Products: Performance, Price Discovery and Hedging
This paper investigates the performance, hedging ability and price discovery relationship between some of the most popular exchange traded products with the volatility index VIX as the underlying. We find a large difference in the price discovery function for the direct unleveraged VIX ETPs. The VIX ETPs have good tracking
performance, but suffer from time-decay due to the shape of the VIX futures term
structure. This time-decay makes them unsuitable for buy-and-hold investments,
but gives rise to a profitable trading strategy using direct and inverse VIX ETPs.
The strategy is robust to transaction costs. Despite being negatively correlated
with the S&P 500, the ETPs perform poorly as hedging tools. By using simple
rebalancing rules, the inclusion of VIX ETPs in a portfolio tracking the S&P 500
will decrease the risk-adjusted performance of the portfolio.
Place, publisher, year, edition, pages
Institutt for industriell økonomi og teknologiledelse , 2014. , 44 p.
IdentifiersURN: urn:nbn:no:ntnu:diva-25966Local ID: ntnudaim:11751OAI: oai:DiVA.org:ntnu-25966DiVA: diva2:742887
Molnar, Peter, Post doktor