Volatility-Related Exchange Traded Assets: An Econometric Investigation

Javier Mencia () and Enrique Sentana

Journal of Business & Economic Statistics, 2018, vol. 36, issue 4, 599-614

Abstract: We develop a theoretical framework for covariance stationary but persistent positively valued processes which combines a semi-nonparametric expansion of the Gamma distribution with a component version of the multiplicative error model. Our conditional mean assumption allows for slow, possibly nonmonotonic mean-reversion, while our distribution assumption provides more flexibility than a traditional Laguerre expansion while preserving positivity of the density. We apply our framework to a dynamic portfolio allocation for Exchange Traded Notes tracking short- and mid-term VIX futures indices, which are increasingly popular but risky financial instruments. We show the superior performance of the strategies based on our econometric model.

Date: 2018
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Related works:
Working Paper: Volatility-related exchange traded assets: an econometric investigation (2015)
Working Paper: Volatility-Related Exchange Traded Assets: An Econometric Investigation (2015)
Working Paper: Volatility-related exchange traded assets: an econometric investigation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:36:y:2018:i:4:p:599-614

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DOI: 10.1080/07350015.2016.1216852

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