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The economic value of VIX ETPs

Christensen, Kim ; Christiansen, Charlotte LU and Posselt, Anders M. (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
; and
organization
publishing date
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
2020-12-29 03:23:59
@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},
  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},
}