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The economic value of VIX ETPs

Kim Christensen, Charlotte Christiansen and Anders M. Posselt

Journal of Empirical Finance, 2020, vol. 58, issue C, 121-138

Abstract: The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.

Keywords: VIX; VIX ETPs; VIX premium; Economic value; Portfolio diversification (search for similar items in EconPapers)
JEL-codes: G11 G15 G23 (search for similar items in EconPapers)
Date: 2020
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Working Paper: The Economic Value of VIX ETPs (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:58:y:2020:i:c:p:121-138

DOI: 10.1016/j.jempfin.2020.05.009

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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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