Manipulation in the VIX?

58 Pages Posted: 24 May 2017  

John M. Griffin

University of Texas at Austin - Department of Finance

Amin Shams

University of Texas at Austin - Department of Finance

Date Written: May 23, 2017

Abstract

At the settlement time of the VIX Volatility Index, volume spikes on S&P 500 Index (SPX) options, but only in out-of-the-money options that are used to calculate the VIX, and more so for options with a higher and discontinuous influence on VIX. We investigate alternative explanations of hedging and coordinated liquidity trading. Tests including those utilizing differences in put and call options, open interest around the settlement, and a similar volatility contract with an entirely different settlement procedure in Europe are inconsistent with these explanations but consistent with market manipulation. Large transient deviations in prices demonstrate the importance of settlement design.

Suggested Citation

Griffin, John M. and Shams, Amin, Manipulation in the VIX? (May 23, 2017). Available at SSRN: https://ssrn.com/abstract=2972979 or http://dx.doi.org/10.2139/ssrn.2972979

John M. Griffin

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Amin Shams (Contact Author)

University of Texas at Austin - Department of Finance ( email )

McCombs School of Business
Austin, TX 78712
United States

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