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The Economic Value of VIX ETPs

Author

Listed:
  • Kim Christensen

    () (Aarhus University and CREATES)

  • Charlotte Christiansen

    () (Aarhus University and CREATES, Lund University)

  • Anders M. Posselt

    () (Aarhus University and CREATES)

Abstract

The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification. We examine the economic value of using VIX ETPs for diversification of stock-bond portfolios. We consider seven different investment strategies based on short-sales constrained and unconstrained investors who use four different investment styles for their optimization strategy. 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 prohibited from short selling, the diversification benefits of the VIX ETPs do not offset the negative returns on the VIX ETPs. Hence there is a negative economic value of including VIX ETPs in stock-bond portfolios. This applies to all investment styles. It even applies when adjusting for a simulated market crash. For investors who are not constrained from selling assets short, the results are mixed as the economic value of VIX ETPs vary with respect to investment style and product.

Suggested Citation

  • Kim Christensen & Charlotte Christiansen & Anders M. Posselt, 2019. "The Economic Value of VIX ETPs," CREATES Research Papers 2019-14, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:create:2019-14
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    File URL: ftp://ftp.econ.au.dk/creates/rp/19/rp19_14.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    VIX; VIX ETPs; Portfolio diversification; Realized volatility; Mean-variance analysis;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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