Has Manipulation in the VIX Decreased?

73 Pages Posted: 9 Jul 2021 Last revised: 5 May 2023

See all articles by Tim Baumgartner

Tim Baumgartner

University of Ulm - Department of Mathematics and Economics

Andre Guettler

Ulm University - Department of Mathematics and Economics; Halle Institute for Economic Research

Date Written: May 5, 2023

Abstract

Manipulation in the VIX settlement can cause significant losses to investors, concerning an open interest of more than a billion US-Dollars. Analysing high-frequency data, we present indications of VIX manipulation accelerating since 2017. Deviations from a fair value have an upward direction and average at around 6%. Specific effects accompany settlement days. The put/call ratio of underlying options surges by 10.9%. A time series decomposition demonstrates that this difference exceeds the day-specific variations of all other days by 80%. Data on open interest point towards leveraged funds, who systematically gather additional exposure in the seven days before settlement. All other players seem to reduce their VIX exposure before settlement.

Keywords: VIX, Market Manipulation, Expiration Day Effects, Volatility, Settlement Design, Term Structure

JEL Classification: G12, G13, G14, G23, G24

Suggested Citation

Baumgartner, Tim and Guettler, Andre, Has Manipulation in the VIX Decreased? (May 5, 2023). Available at SSRN: https://ssrn.com/abstract=3874249 or http://dx.doi.org/10.2139/ssrn.3874249

Tim Baumgartner (Contact Author)

University of Ulm - Department of Mathematics and Economics ( email )

Helmholtzstr. 22
Ulm, D-89081
Germany

Andre Guettler

Ulm University - Department of Mathematics and Economics ( email )

Helmholzstrasse
Ulm, D-89081
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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