The Economic Value of VIX ETPs

65 Pages Posted: 18 Sep 2019 Last revised: 23 Apr 2020

See all articles by Kim Christensen

Kim Christensen

Aarhus University - CREATES

Charlotte Christiansen

Aarhus University - CREATES

Anders Merrild Posselt

Aarhus University - CREATES

Date Written: September 9, 2019

Abstract

The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock-bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.

Keywords: VIX; VIX ETPs; VIX Premium; Economic value; Portfolio diversification

JEL Classification: G11; G15; G23

Suggested Citation

Christensen, Kim and Christiansen, Charlotte and Posselt, Anders Merrild, The Economic Value of VIX ETPs (September 9, 2019). Available at SSRN: https://ssrn.com/abstract=3450829 or http://dx.doi.org/10.2139/ssrn.3450829

Kim Christensen

Aarhus University - CREATES ( email )

Department of Economics and Business Economics
Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Charlotte Christiansen (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

Anders Merrild Posselt

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus, 8210
Denmark

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