VIX changes and derivative returns on FOMC meeting days

Kevin Krieger (), Nathan Mauck and Denghui Chen

Financial Markets and Portfolio Management, 2012, vol. 26, issue 3, 315-331

Abstract: We examine the link between scheduled Federal Open Market Committee (FOMC) meetings and the VIX measure. Our results indicate that VIX declines significantly on scheduled meeting dates. Unlike prior studies suggesting that the drop in VIX is mechanical, we attribute the decline to the resolution of uncertainty regarding future interest rates provided by the meetings. We examine returns to investable positions on VIX. Though a decline in the VIX level commonly occurs on FOMC meeting dates, we find that significant returns may still be garnered from taking short-VIX positions in derivative markets, even after accounting for the bid-ask spread. Copyright Swiss Society for Financial Market Research 2012

Keywords: VIX; FOMC federal funds target rate; Monetary policy; Efficient markets; G14; E44 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11408-012-0191-4

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