Betting on Mean Reversion in the VIX? Evidence From the Revealed Preferences of Investors

42 Pages Posted: 2 Mar 2020

See all articles by Ole Linnemann Nielsen

Ole Linnemann Nielsen

Aarhus University - CREATES

Anders Merrild Posselt

Aarhus University - CREATES

Date Written: January 31, 2020

Abstract

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

Nielsen, Ole Linnemann and Posselt, Anders Merrild, Betting on Mean Reversion in the VIX? Evidence From the Revealed Preferences of Investors (January 31, 2020). Available at SSRN: https://ssrn.com/abstract=3529285 or http://dx.doi.org/10.2139/ssrn.3529285

Ole Linnemann Nielsen

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Anders Merrild Posselt (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus, 8210
Denmark

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