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What Makes the VIX Tick?Warren BaileyCornell University Lin ZhengCity University of New York, CUNY City College of New York - Department of Economics and Business Yinggang ZhouThe Chinese University of Hong Kong September 9, 2012 Abstract: We seek the roots of one-minute changes in VIX, an index of S&P 500 option prices, to understand risk neutral volatility and its risk premium component. Beyond leverage and risk premium effects, macroeconomic influences and some proxies for noise trading in the S&P 500 ETF market are significant, though measures of small investor sentiment have little significance. VIX changes display negative serial correlation suggesting liquidity provision in the options market. Temporary price effects are observed around macroeconomic news releases. Though often viewed as an exogenous state variable, a significant portion of VIX variability relates to trader behavior and macroeconomic fundamentals.
Number of Pages in PDF File: 71 Keywords: VIX, implied volatility, volatility risk premium, investor sentiment JEL Classification: G11, G12, G13 working papers seriesDate posted: September 9, 2012Suggested CitationContact Information
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