Betting on mean reversion in the VIX? Evidence from ETP flows

Ole Linnemann Nielsen; Anders Merrild Posselt

Betting on mean reversion in the VIX? Evidence from ETP flows

Ole Linnemann Nielsen, Anders Merrild Posselt^*

^*Corresponding author for this work

Department of Economics and Business Economics - CREATES

Research output: Working paper/Preprint › Working paper › Research

225 Downloads (Pure)

Abstract

We investigate flows of VIX ETPs with long volatility exposure. We find an inverse relation between flows and the level of the VIX, implying that investors sell VIX ETPs when the VIX is at elevated levels, consistent with investors incorporating the typical mean reverting behavior of volatility. We find no evidence supporting that investors consider exposure to risk factors when they evaluate VIX ETP performance. Finally, our results suggest that large outflows following increases in the VIX may be a partial explanation of the “low premium response puzzle” in the VIX premium.

Original language	English
Place of publication	Aarhus
Publisher	Århus Universitet
Number of pages	44
Publication status	Published - 24 Jan 2022

Series	CREATES Research Paper
Number	2022-06

Access to Document

rp22_06Final published version, 815 KB

Cite this

@techreport{54c8153bd2ea4af4bcbd5cde4d2df685,

title = "Betting on mean reversion in the VIX? Evidence from ETP flows",

abstract = "We investigate flows of VIX ETPs with long volatility exposure. We find an inverse relation between flows and the level of the VIX, implying that investors sell VIX ETPs when the VIX is at elevated levels, consistent with investors incorporating the typical mean reverting behavior of volatility. We find no evidence supporting that investors consider exposure to risk factors when they evaluate VIX ETP performance. Finally, our results suggest that large outflows following increases in the VIX may be a partial explanation of the “low premium response puzzle” in the VIX premium.",

keywords = "VIX ETPs, Flows, Asset Pricing Tests, VIX Premium",

author = "Nielsen, {Ole Linnemann} and Posselt, {Anders Merrild}",

year = "2022",

month = jan,

day = "24",

language = "English",

series = "CREATES Research Paper",

publisher = "{\AA}rhus Universitet",

number = "2022-06",

type = "WorkingPaper",

institution = "{\AA}rhus Universitet",

}

TY - UNPB

T1 - Betting on mean reversion in the VIX? Evidence from ETP flows

AU - Nielsen, Ole Linnemann

AU - Posselt, Anders Merrild

PY - 2022/1/24

Y1 - 2022/1/24

N2 - We investigate flows of VIX ETPs with long volatility exposure. We find an inverse relation between flows and the level of the VIX, implying that investors sell VIX ETPs when the VIX is at elevated levels, consistent with investors incorporating the typical mean reverting behavior of volatility. We find no evidence supporting that investors consider exposure to risk factors when they evaluate VIX ETP performance. Finally, our results suggest that large outflows following increases in the VIX may be a partial explanation of the “low premium response puzzle” in the VIX premium.

AB - We investigate flows of VIX ETPs with long volatility exposure. We find an inverse relation between flows and the level of the VIX, implying that investors sell VIX ETPs when the VIX is at elevated levels, consistent with investors incorporating the typical mean reverting behavior of volatility. We find no evidence supporting that investors consider exposure to risk factors when they evaluate VIX ETP performance. Finally, our results suggest that large outflows following increases in the VIX may be a partial explanation of the “low premium response puzzle” in the VIX premium.

KW - VIX ETPs

KW - Flows

KW - Asset Pricing Tests

KW - VIX Premium

M3 - Working paper

T3 - CREATES Research Paper

BT - Betting on mean reversion in the VIX? Evidence from ETP flows

PB - Århus Universitet

CY - Aarhus

ER -