The Economic Value of VIX ETPs
65 Pages Posted: 18 Sep 2019 Last revised: 23 Apr 2020
Date Written: September 9, 2019
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: Suggested Citation