Effects of nondiscretionary trading on futures prices

Michael J. O'Neill and Robert E. Whaley

Journal of Futures Markets, 2023, vol. 43, issue 1, 33-68

Abstract: This paper examines the effects of the nondiscretionary trading demands of volatility index (VIX) exchange‐traded products (ETPs) issuers on the prices and volumes in the VIX futures. We find that the ETPs' informationless, mechanical rebalancing of futures positions to maintain the constant maturity of the index and the promised leverage ratios of the VIX ETPs have significantly positive predictive power for end‐of‐day futures returns. We also show that the impact on price has diminished through time from increased liquidity provided by hedge funds, and the “natural” hedging of the issuers' inverse products.

Date: 2023
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https://doi.org/10.1002/fut.22377

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:43:y:2023:i:1:p:33-68

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