The stock market impact of volatility hedging: Evidence from end-of-day trading by VIX ETPs

Christine Bangsgaard and Thomas Kokholm

Journal of Banking & Finance, 2025, vol. 180, issue C

Abstract: VIX futures market makers can hedge their volatility exposure by trading SPX options and futures. We use the daily VIX futures demand by VIX ETP issuers as an estimate of the end-of-day shock to market makers’ net position and find that the demand impacts the SPX futures market in the direction consistent with the VIX futures hedging channel. The VIX ETP demand is a strong predictor of the end-of-day SPX futures return in-sample and out-of-sample. We find evidence of a subsequent reversal, suggesting that VIX futures hedging activities can move the SPX futures market for reasons unrelated to price discovery.

Keywords: Price impact; Volatility hedging; SPX futures; VIX futures; VIX ETPs (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G23 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:180:y:2025:i:c:s0378426625001761

DOI: 10.1016/j.jbankfin.2025.107556

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