Fear Trading

David Ardia

MPRA Paper from University Library of Munich, Germany

Abstract: Our trading strategy is inspired from the paper "implied volatility indices as leading indicators of stock index returns?", Giot (2002,[3]). It uses stylized facts observed in stock markets: the so called "leverage effect", the clustering and the mean-reverting behaviour of the implied volatility. Based on S&P100 and VIX data, we show that abnormally high levels of volatility can be used as a trading signals for long traders. A bootstrap procedure confirms the significant returns for the 1986-2003 period.

Keywords: VIX; trading strategy (search for similar items in EconPapers)
JEL-codes: C32 C29 C53 (search for similar items in EconPapers)
Date: 2003
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