How Rational Could VIX Investing Be?

25 Pages Posted: 29 Sep 2015 Last revised: 28 Mar 2016

See all articles by Hamza Bahaji

Hamza Bahaji

University of Paris 9 Dauphine, DRM-Finance; NATIXIS Asset Management

Salah Aberkane

Bloomberg Financial Markets Ltd

Date Written: January 1, 2015


In the aftermath of the credit and banking crises, VIX-based ETNs have gained in popularity among under-diversified market participants since traditional diversification channels became less effective due to increasing correlations. Since then, VIX investing has attracted much heated debate about its controversial diversification benefits for passive buy-and-hold investors. We show that an uninformed utility-maximizing investor, with a feasible level of risk aversion and reasonable portfolio exposure constraints, can use VIX futures to significantly improve his optimal reference portfolio comprised of a monetary asset, equities, corporate and government bonds. We find also that VIX futures provide significant improvement over hedge funds and commodities. Our results show, however, that VIX futures investing may yield significantly lower than expected utility, which leads to disappointment for investors with higher-order moments preferences.

Keywords: VIX futures, ETNs, portfolio allocation, portfolio diversification, disappointment measure

JEL Classification: G11, G13, G17, G19

Suggested Citation

Bahaji, Hamza and Aberkane, Salah, How Rational Could VIX Investing Be? (January 1, 2015). Economic Modelling, Forthcoming, Available at SSRN: or

Hamza Bahaji (Contact Author)

University of Paris 9 Dauphine, DRM-Finance ( email )

Place du Maréchal de Lattre de Tassigny
Cedex 16
Paris, 75775
00 33 6 10 30 03 67 (Phone)

NATIXIS Asset Management ( email )

21 Quai d'Austerlitz
Paris, 75013
0033178403633 (Phone)

Salah Aberkane

Bloomberg Financial Markets Ltd ( email )

City Gate House
39-45 Finsbury Square
London, E1 8GD
United Kingdom
02073307171 (Phone)

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