Investment Strategies with VIX and VSTOXX Futures
44 Pages Posted: 8 Nov 2013 Last revised: 2 Dec 2013
Date Written: November 7, 2013
This study examines historical data on S&P500 and EURO STOXX 50, VIX and VSTOXX, VIX and VSTOXX futures, to reveal linkages between these important series that can be used by equity investors to generate alpha and protect their investments during turbulent times. A comparative portfolio performance analysis in the U.S. and the E.U. zone reveals that over time the best investment strategy for a stock investor is to add both bonds and volatility futures to their portfolio. We also reveal a long-short cross border statistical arbitrage strategy pairing volatility index futures that can generate profits using forecasts produced by suitable GARCH models.
Keywords: volatility indexes, volatility derivatives, GARCH models, statistical arbitrage
JEL Classification: G15, G11, C58
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