The economic value of VIX ETPs

Kim Christensen; Charlotte Christiansen; Anders M. Posselt

doi:10.1016/j.jempfin.2020.05.009

The economic value of VIX ETPs

Kim Christensen, Charlotte Christiansen, Anders M. Posselt^*

^*Corresponding author for this work

Department of Economics and Business Economics - CREATES

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

6 Citations (Scopus)

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Abstract

The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.

Original language	English
Journal	Journal of Empirical Finance
Volume	58
Pages (from-to)	121-138
Number of pages	18
ISSN	0927-5398
DOIs	https://doi.org/10.1016/j.jempfin.2020.05.009
Publication status	Published - 2020

Keywords

Economic value
Portfolio diversification
VIX
VIX ETPs
VIX premium

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10.1016/j.jempfin.2020.05.009

The_economic_value_of__VIX_ETPs_JEF_2020_AMAccepted manuscript, 1.73 MBLicence: CC BY-NC-ND

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title = "The economic value of VIX ETPs",

abstract = "The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.",

keywords = "Economic value, Portfolio diversification, VIX, VIX ETPs, VIX premium",

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AU - Christensen, Kim

AU - Christiansen, Charlotte

AU - Posselt, Anders M.

PY - 2020

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N2 - The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.

AB - The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.

KW - Economic value

KW - Portfolio diversification

KW - VIX

KW - VIX ETPs

KW - VIX premium

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DO - 10.1016/j.jempfin.2020.05.009

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SN - 0927-5398

VL - 58

SP - 121

EP - 138

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

ER -

The economic value of VIX ETPs

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Keywords

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