Volatility as a new class of assets? The advantages of using volatility index futures in investment strategies

Juliusz Jabłecki (), Ryszard Kokoszczyński, Pawel Sakowski, Robert Ślepaczuk and Piotr Wójcik
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Juliusz Jabłecki: Faculty of Economic Sciences, University of Warsaw; National Bank of Poland

No 2014-26, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper investigates the changes in the investment portfolio performance after including VIX. We apply different models for optimal portfolio selection (Markowitz and Black-Litterman) assuming both the possibility of short sale and the lack of it. We also use various assets, data frequencies, and investment horizons to get a comprehensive picture of our results’ robustness. Investment strategies including VIX futures do not always deliver higher returns or higher Sharpe ratios for the period 2006-2013. Their performance is quite sensitive to changes in model parameters. However, including VIX significantly increases the returns in almost all cases during the recent financial crisis. This result clearly emphasizes potential gains of having such an asset in the portfolio in case of very high volatility in financial markets.

Keywords: volatility; VIX futures; investment strategies; optimal portfolio selection; Markowitz model; Black-Litterman model (search for similar items in EconPapers)
JEL-codes: G11 G14 G17 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014
New Economics Papers: this item is included in nep-rmg
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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP143.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2014-26

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