The market impact of predictable flows: Evidence from leveraged VIX products

Søren Bundgaard Brøgger

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: What is the market impact of predictable order flow? Leveraged exchange-traded products are useful for answering this question because they generate daily rebalancing flows whose size, sign and timing are predictable. This paper presents new evidence from the market for leveraged volatility products. While the daily rebalancing imposes an implicit cost on investors by putting pressure on closing prices, there is no evidence that the cost is driven by predatory trading. On the contrary, I show that larger and more predictable flows have smaller price impact coefficients, and that there are no excess profits from trading ahead of rebalancing flows during the sample period.

Keywords: Strategic trading; Trading costs; Sunshine trading; Closing prices; Leveraged products; ETFs; VIX (search for similar items in EconPapers)
JEL-codes: G10 G11 G13 G14 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002363

DOI: 10.1016/j.jbankfin.2021.106280

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