Betting on mean reversion in the VIX? Evidence from ETP flows

Ole Linnemann Nielsen and Anders Merrild Posselt

International Review of Financial Analysis, 2024, vol. 95, issue PB

Abstract: We investigate how investors apply VIX ETPs with long VIX exposure by analyzing the relation between the flows of these products and the VIX. We find that increases in the VIX are followed by outflows meaning that VIX ETP investors, in aggregate reduce their VIX ETP positions immediately after there is an increase in market risk. Since the returns of VIX ETPs are closely linked to the VIX, our results imply that VIX ETP investors expect mean reversals in market risk. By comparing the ability of different asset pricing models to predict the flows, we find no evidence that investors in VIX ETPs consider systematic risk factors. Finally, studying the relation between VIX ETP flows and the VIX premium, we find that large outflows following increases in the VIX may be the cause of the low response puzzle in the VIX premium.

Keywords: VIX ETPs; Flows; Asset pricing tests; VIX premium (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pb:s1057521924003533

DOI: 10.1016/j.irfa.2024.103421

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