Day-of-the-week effect on the VIX. A parsimonious representation
Maria T. Gonzalez-Perez () and
David Guerrero ()
The North American Journal of Economics and Finance, 2013, vol. 25, issue C, 243-260
The study of significant deterministic seasonal patterns in financial asset returns is of high importance to academia and investors. This paper analyzes the presence of seasonal daily patterns in the VIX and S&P 500 returns series using a trigonometric specification. First, we show that, given the isomorphism between the trigonometrical and alternative seasonality representations (i.e., daily dummies), it is possible to test daily seasonal patterns by employing a trigonometrical representation based on a finite sum of weighted sines and cosines. We find a potential evolutive seasonal pattern in the daily VIX that is not in the daily S&P 500 log-returns series. In particular, we find an inverted Monday effect in the VIX level and changes in the VIX, and a U-shaped seasonal pattern in the changes in the VIX when we control for outliers. The trigonometrical representation is more robust to outliers than the one commonly used by literature, but it is not immune to them. Finally, we do not find a day-of-the-week effect in S&P 500 returns series, which suggests the presence of a deterministic seasonal pattern in the relation between VIX and S&P 500 returns.
Keywords: Volatility index; Returns; Box–Cox transformation; Seasonality; Leverage effect (search for similar items in EconPapers)
JEL-codes: C32 G13 G15 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:25:y:2013:i:c:p:243-260
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