Tracking performance of VIX futures ETPs

Sebastian A. Gehricke and Jin E. Zhang

Journal of Empirical Finance, 2021, vol. 61, issue C, 103-117

Abstract: We find that, at the daily level, none of the VIX futures Exchange-Traded Products (ETPs) track their intrinsic values perfectly, although the tracking improves at the weekly and monthly frequency. We show that all products tracking deviations are driven by mainly driven by limits to arbitrage, measured by market conditions, liquidity and transaction costs. Exchange-Traded Funds’ (ETFs’) deviations are more significantly related to fund flows, which shows authorized participants taking advantage of arbitrage opportunities by creating/redeeming ETF units. The Exchange-Traded Notes (ETNs) do not have this mechanism, creation and redemption is reliant on the issuers and delayed, so their deviations are less related to flows.

Keywords: VIX; VIX futures; Exchange-traded products (ETPs); Tracking performance; Limits to arbitrage; Hedging pressure (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:61:y:2021:i:c:p:103-117

DOI: 10.1016/j.jempfin.2021.01.002

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