The economic value of VIX ETPs
(2020) In Journal of Empirical Finance 58. p.121-138- Abstract
The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.
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- author
- Christensen, Kim ; Christiansen, Charlotte LU and Posselt, Anders M.
- organization
- publishing date
- 2020
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Economic value, Portfolio diversification, VIX, VIX ETPs, VIX premium
- in
- Journal of Empirical Finance
- volume
- 58
- pages
- 18 pages
- publisher
- North-Holland
- external identifiers
-
- scopus:85086127802
- ISSN
- 0927-5398
- DOI
- 10.1016/j.jempfin.2020.05.009
- language
- English
- LU publication?
- yes
- id
- cdb951e1-e05b-47ce-a887-233e170ee70a
- date added to LUP
- 2020-06-30 12:27:52
- date last changed
- 2022-04-18 23:15:16
@article{cdb951e1-e05b-47ce-a887-233e170ee70a, abstract = {{<p>The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.</p>}}, author = {{Christensen, Kim and Christiansen, Charlotte and Posselt, Anders M.}}, issn = {{0927-5398}}, keywords = {{Economic value; Portfolio diversification; VIX; VIX ETPs; VIX premium}}, language = {{eng}}, pages = {{121--138}}, publisher = {{North-Holland}}, series = {{Journal of Empirical Finance}}, title = {{The economic value of VIX ETPs}}, url = {{http://dx.doi.org/10.1016/j.jempfin.2020.05.009}}, doi = {{10.1016/j.jempfin.2020.05.009}}, volume = {{58}}, year = {{2020}}, }