Betting on mean reversion in the VIX? Evidence from ETP flows

Ole Linnemann Nielsen () and Anders Merrild Posselt ()
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Ole Linnemann Nielsen: Jyske Bank, Postal: Vestergade 8-16, 8600 Silkeborg, Denmark
Anders Merrild Posselt: Aarhus University and CREATES, Postal: Fuglesangs Allé 4, 8210 Aarhus V, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We investigate flows of VIX ETPs with long volatility exposure. We find an inverse relation between flows and the level of the VIX, implying that investors sell VIX ETPs when the VIX is at elevated levels, consistent with investors incorporating the typical mean reverting behavior of volatility. We find no evidence supporting that investors consider exposure to risk factors when they evaluate VIX ETP performance. Finally, our results suggest that large outflows following increases in the VIX may be a partial explanation of the “low premium response puzzle” in the VIX premium.

Keywords: VIX ETPs; Flows; Asset Pricing Tests; VIX Premium (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 G14 (search for similar items in EconPapers)
Pages: 44
Date: 2022-01-24
New Economics Papers: this item is included in nep-ore
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