Betting on Mean Reversion in the VIX? Evidence From the Revealed Preferences of Investors
42 Pages Posted: 2 Mar 2020
Date Written: January 31, 2020
We evaluate the ability of different asset pricing models to explain the flows into VIX ETPs with long volatility exposure. We find that investors in these products do not consider any systematic risk when they evaluate performance. Instead the products are applied as tools for speculating in the mean-reverting nature of the VIX. We provide evidence that the investor behavior in these products is a very likely explanation for the “low premium response puzzle” in the VIX premium.
Keywords: VIX ETPs, Asset Pricing Tests, Flows, VIX Premium
JEL Classification: G11; G12; G13; G14
Suggested Citation: Suggested Citation