Has Manipulation in the VIX Decreased?
73 Pages Posted: 9 Jul 2021 Last revised: 5 May 2023
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: Suggested Citation