Volatility as an Asset Class: Holding VIX in a Portfolio

Journal of Futures Markets, Forthcoming

29 Pages Posted: 27 Jan 2020

See all articles by James Doran

James Doran

University of New South Wales

Date Written: January 2, 2020

Abstract

Hedging market downturns without sacrificing upside has long been sought by investors. If VIX was directly investable, adding it as a hedge to the S&P 500 would result in significantly improved performance over the equity only portfolio. However, tradable VIX products do not provide the hedge or returns investors seek over long-term horizons. Alternatively, deconstructing VIX to find the key S&P 500 options which drive VIX movements leads to a synthetic VIX portfolio that provides a more effective hedge. Using these options captures correlations and returns similar to VIX, and combined with the S&P 500, outperforms the buy-and-hold index portfolio.

Keywords: VIX index, S&P 500 Index, Portfolio Returns, Volatility

JEL Classification: G11, G12

Suggested Citation

Doran, James, Volatility as an Asset Class: Holding VIX in a Portfolio (January 2, 2020). Journal of Futures Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3514141

James Doran (Contact Author)

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

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