Abstract

https://ssrn.com/abstract=2143891
 


 



What Makes the VIX Tick?


Warren Bailey


Cornell University

Lin Zheng


City University of New York, CUNY City College of New York - Department of Economics and Business

Yinggang Zhou


Xiamen University - Department of Finance

February 27, 2014


Abstract:     
We study minute-by-minute behavior of the VIX index and trading activity in the underlying S&P 500 options to understand the impact of macro and microeconomic forces on risk neutral volatility. VIX often increases with macroeconomic news, reflects the credibility of Fed monetary stimulus, and behaves differently before, during, and after the financial crisis. Comparing VIX to its estimated variance risk premium reveals divergences between uncertainty and risk aversion. The most prominent feature of the dynamics of VIX is mean reversion. This is consistent with liquidity provision which weakens during the financial crisis and is partly related to news arrival.

Number of Pages in PDF File: 61

Keywords: VIX, implied volatility, volatility risk premium, macroeconomic news, policy uncertainty

JEL Classification: G11, G12, G13


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Date posted: September 9, 2012 ; Last revised: February 27, 2014

Suggested Citation

Bailey, Warren and Zheng, Lin and Zhou, Yinggang, What Makes the VIX Tick? (February 27, 2014). Available at SSRN: https://ssrn.com/abstract=2143891 or http://dx.doi.org/10.2139/ssrn.2143891

Contact Information

Warren B. Bailey (Contact Author)
Cornell University ( email )
Samuel CurtisJohnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Lin Zheng
City University of New York, CUNY City College of New York - Department of Economics and Business ( email )
Convent Avenue at 138th Street
New York, NY 10031
United States
Yinggang Zhou
Xiamen University - Department of Finance ( email )
Xiamen, Fujian 361005
China
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