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What Makes the VIX Tick?

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Author Info

  • Warren Bailey

    (Cornell University)

  • Lin Zheng

    (City College of New York)

  • Yinggang Zhou

    (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research)

Registered author(s):

    Abstract

    We seek the roots of one-minute changes in VIX, an index of S&P 500 option prices, to understand risk neutral volatility and its risk premium component. Beyond leverage and risk premium effects, macroeconomic influences and some proxies for noise trading in the S&P 500 ETF market are significant, though measures of small investor sentiment have little significance. VIX changes display negative serial correlation suggesting liquidity provision in the options market. Temporary price effects are observed around macroeconomic news releases. Though often viewed as an exogenous state variable, a significant portion of VIX variability relates to trader behavior and macroeconomic fundamentals.

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    File URL: http://www.hkimr.org/uploads/publication/335/wp-no-22_2012-final-.pdf
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    Bibliographic Info

    Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 222012.

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    Length: 59 pages
    Date of creation: Sep 2012
    Date of revision:
    Handle: RePEc:hkm:wpaper:222012

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    Related research

    Keywords: VIX; Implied Volatility; Volatility Risk Premium; Investor Sentiment;

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    References

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