Long‐term dynamics of the VIX index and its tradable counterpart VXX

Milan Bašta and Peter Molnár

Journal of Futures Markets, 2019, vol. 39, issue 3, 322-341

Abstract: We study the relationship of the VIX index and the exchange‐traded note VXX on various timescales. We find that changes of VIX and VXX are correlated only contemporaneously on timescales of days, but VIX leads VXX on timescales of months. Next, we construct a simple joint model for VXX and VIX which replicates all the key characteristics of these two time series, but in which VIX and VXX are related only via a correlated error term. Therefore, VIX cannot be used as a predictor of VXX and there is no apparent trading profit opportunity.

Date: 2019
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