IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v27y2022i3p3791-3798.html
   My bibliography  Save this article

What can inverse VIX contribute to an investment portfolio?

Author

Listed:
  • Wei‐Han Liu
  • Jow‐Ran Chang

Abstract

This study investigates the performance of the Inverse VIX issued by following the frameworks in Bali et al. (2009) and Bali, Brown, and Demirtas (2013), which examine from the perspectives of asset weight of Inverse VIX and holding periods. We employ the refined definition of almost stochastic dominance by Chang, Liu, and Hung (2019) via its first‐ and second‐order definitions. We also compare this asset's performance with S&P 500 and a 30‐year T‐bond. The empirical evidence indicates that the Inverse VIX is preferred over the other two investment alternatives. Our conclusions indicate that the holding period length plays a role. It is recommended to increase the asset weight of the Inverse VIX within its upper limit that is bound to enhance portfolio performance.

Suggested Citation

  • Wei‐Han Liu & Jow‐Ran Chang, 2022. "What can inverse VIX contribute to an investment portfolio?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3791-3798, July.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:3:p:3791-3798
    DOI: 10.1002/ijfe.2351
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.2351
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.2351?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jeff Fleming & Barbara Ostdiek & Robert E. Whaley, 1995. "Predicting stock market volatility: A new measure," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 15(3), pages 265-302, May.
    2. Ryan Sullivan & Allan Timmermann & Halbert White, 1999. "Data‐Snooping, Technical Trading Rule Performance, and the Bootstrap," Journal of Finance, American Finance Association, vol. 54(5), pages 1647-1691, October.
    3. Christensen, Kim & Christiansen, Charlotte & Posselt, Anders M., 2020. "The economic value of VIX ETPs," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 121-138.
    4. Tom Nohel & Steven K. Todd, 2015. "Volatility as an Asset Class," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 14, pages 437-464, World Scientific Publishing Co. Pte. Ltd..
    5. Jow-Ran Chang & Wei-Han Liu & Mao-Wei Hung, 2019. "Revisiting generalized almost stochastic dominance," Annals of Operations Research, Springer, vol. 281(1), pages 175-192, October.
    6. Angel Tengulov & Robert E. Whaley, 2020. "Levered and inverse VIX ETP option contract adjustments: No harm, no foul?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3253-3277, December.
    7. Bali, Turan G. & Demirtas, K. Ozgur & Levy, Haim & Wolf, Avner, 2009. "Bonds versus stocks: Investors' age and risk taking," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 817-830, September.
    8. Moshe Leshno & Haim Levy, 2002. "Preferred by "All" and Preferred by "Most" Decision Makers: Almost Stochastic Dominance," Management Science, INFORMS, vol. 48(8), pages 1074-1085, August.
    9. Christoffer Bordonado & Peter Molnár & Sven R. Samdal, 2017. "VIX Exchange Traded Products: Price Discovery, Hedging, and Trading Strategy," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(2), pages 164-183, February.
    10. Adrian Fernandez‐Perez & Bart Frijns & Ilnara Gafiatullina & Alireza Tourani‐Rad, 2018. "Determinants of intraday price discovery in VIX exchange traded notes," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(5), pages 535-548, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guo, Xu & Wong, Wing-Keung & Zhu, Lixing, 2013. "Make Almost Stochastic Dominance really Almost," MPRA Paper 49745, University Library of Munich, Germany.
    2. Michel Denuit & Rachel Huang & Larry Tzeng, 2014. "Bivariate almost stochastic dominance," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 377-405, October.
    3. Guo, Xu & Post, Thierry & Wong, Wing-Keung & Zhu, Lixing, 2014. "Moment conditions for Almost Stochastic Dominance," Economics Letters, Elsevier, vol. 124(2), pages 163-167.
    4. Denuit, Michel M. & Huang, Rachel J. & Tzeng, Larry Y. & Wang, Christine W., 2014. "Almost marginal conditional stochastic dominance," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 57-66.
    5. Guo, Xu & Zhu, Xuehu & Wong, Wing-Keung & Zhu, Lixing, 2013. "A note on almost stochastic dominance," Economics Letters, Elsevier, vol. 121(2), pages 252-256.
    6. Guo, Xu & Wong, Wing-Keung & Zhu, Lixing, 2013. "Almost Stochastic Dominance and Moments," MPRA Paper 49205, University Library of Munich, Germany.
    7. Jackwerth, Jens Carsten & Slavutskaya, Anna, 2016. "The total benefit of alternative assets to pension fund portfolios," Journal of Financial Markets, Elsevier, vol. 31(C), pages 25-42.
    8. Sebastian A. Gehricke & Jin E. Zhang, 2020. "Modeling VXX under jump diffusion with stochastic long‐term mean," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(10), pages 1508-1534, October.
    9. Xu, Guo & Wing-Keung, Wong & Lixing, Zhu, 2013. "Almost Stochastic Dominance for Risk-Averse and Risk-Seeking Investors," MPRA Paper 51744, University Library of Munich, Germany.
    10. Turan G. Bali & Stephen J. Brown & K. Ozgur Demirtas, 2013. "Do Hedge Funds Outperform Stocks and Bonds?," Management Science, INFORMS, vol. 59(8), pages 1887-1903, August.
    11. Chunling Luo & Chin Hon Tan, 2020. "Almost Stochastic Dominance for Most Risk-Averse Decision Makers," Decision Analysis, INFORMS, vol. 17(2), pages 169-184, June.
    12. Larry Y. Tzeng & Rachel J. Huang & Pai-Ta Shih, 2013. "Revisiting Almost Second-Degree Stochastic Dominance," Management Science, INFORMS, vol. 59(5), pages 1250-1254, May.
    13. Levy, Moshe, 2019. "Stocks for the log-run and constant relative risk aversion preferences," European Journal of Operational Research, Elsevier, vol. 277(3), pages 1163-1168.
    14. Hermann Jahnke & Jan Thomas Martini & Tobias Wiens, 2019. "Price limits under incomplete preference information based on almost stochastic dominance," Business Research, Springer;German Academic Association for Business Research, vol. 12(1), pages 241-269, April.
    15. Post, Thierry & Kopa, Miloš, 2013. "General linear formulations of stochastic dominance criteria," European Journal of Operational Research, Elsevier, vol. 230(2), pages 321-332.
    16. Kang, Sang Hoon & Arreola Hernandez, Jose & Rehman, Mobeen Ur & Shahzad, Syed Jawad Hussain & Yoon, Seong-Min, 2023. "Spillovers and hedging between US equity sectors and gold, oil, islamic stocks and implied volatilities," Resources Policy, Elsevier, vol. 81(C).
    17. Ole Linnemann Nielsen & Anders Merrild Posselt, 2022. "Betting on mean reversion in the VIX? Evidence from ETP flows," CREATES Research Papers 2022-06, Department of Economics and Business Economics, Aarhus University.
    18. Jow-Ran Chang & Wei-Han Liu & Mao-Wei Hung, 2019. "Revisiting generalized almost stochastic dominance," Annals of Operations Research, Springer, vol. 281(1), pages 175-192, October.
    19. Papapostolou, Nikos C. & Pouliasis, Panos K. & Nomikos, Nikos K. & Kyriakou, Ioannis, 2016. "Shipping investor sentiment and international stock return predictability," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 96(C), pages 81-94.
    20. Hooi Hooi Lean & Michael McAleer & Wing-Keung Wong, 2013. "Risk-averse and Risk-seeking Investor Preferences for Oil Spot and Futures," Documentos de Trabajo del ICAE 2013-31, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico, revised Aug 2013.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:27:y:2022:i:3:p:3791-3798. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.