Investing in VIX futures based on rolling GARCH models forecasts

Oleh Bilyk, Paweł Sakowski and Robert Ślepaczuk
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Paweł Sakowski: Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw

No 2020-10, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: The aim of this work is to compare the performance of VIX futures trading strategies built across different GARCH model volatility forecasting techniques. Long and short signals for VIX futures are produced by comparing one-day ahead volatility forecasts with current historical volatility. We found out that using the daily data over the seven-year period (2013-2019), strategy based on the fGARCH-TGARCH and GJR-GARCH specifications outperformed those of the GARCH and EGARCH models, and performed slightly below the “buy-and-hold” S&P 500 strategy. For the base GARCH(1,1) model, the training window size and the type gave stable results, whereas the performance across refit frequency, conditional distribution of returns, and historical volatility estimators varies significantly. Despite non-robustness of some investment strategies and some space for improvements, the presented strategies show their potential in competing with the equity and volatility benchmarks.

Keywords: GARCH; VIX index; volatility futures; rolling forecasting; volatility; investment strategies; volatility exposure (search for similar items in EconPapers)
JEL-codes: C15 C4 C45 C61 G14 G17 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2020
New Economics Papers: this item is included in nep-ets, nep-fmk, nep-for and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2020-10

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