An analysis on the intraday trading activity of VIX derivatives

Kao, Dian-Xuan; Tsai, Wei‐Che; Wang, Yaw‐Huei; Yen, Kuang‐Chieh

doi:10.1002/fut.21857

Cited by 5 publications

(3 citation statements)

References 62 publications

(79 reference statements)

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“…The VIX futures serves as an instrument to hedge volatility risks. Both Frijns et al (2016) and Kao et al (2018) indicate that the VIX futures contains useful information in predicting the change in VIX , implying that the VIX futures leads the VIX in information spillover. Frijns et al (2016) argue that VIX futures has replaced VIX in its role as the investor fear gauge.…”

Section: Introductionmentioning

confidence: 99%

Hedging performance of volatility index futures: a partial cointegration approach

Lee

Lien

Sheu

2023

Rev Quant Finan Acc

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Using the Clegg-Krauss framework, this paper first examines a partial cointegration relationship between stock index futures and VIX futures prices and then constructs a hedging strategy based upon this relationship. This paper argues that the stock index futures and the VIX futures are both affected by unobservable investor sentiment and thus the price series should be modelled by the partial cointegration relationship. Our empirical results validate a partial cointegration relationship between stock index and VIX futures prices. Based upon the partial cointegration relationship between stock index futures and VIX futures prices, we demonstrate that the proposed strategy outperforms conventional strategies, e.g., OLS , VAR , and VECM , in terms of tail risk reduction and expected utility, especially when the length of the hedge horizon increases. In addition, the partial cointegration-based strategy becomes more dominant when the stock index futures price is near its historical high. Overall, our empirical evidence of the hedging effectiveness for different hedge horizons and market timing with VIX futures provides valuable information for practitioners in risk management.

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Section: Introductionmentioning

confidence: 99%

Hedging performance of volatility index futures: a partial cointegration approach

Lee

Lien

Sheu

2023

Rev Quant Finan Acc

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“…VIX Futures are the dominant market for trading and hedging volatility, involving no up-front costs, reflecting volatility first and predicting the direction of VIX (“tail wags dog”) (see Bollen et al. , 2017; Frijns et al ., 2016; Zhang et al ., 2010; Shu and Zhang, 2012; Zhang and Zhu, 2006; Konstantinidi and Skiadopoulos, 2011; Lin, 2007; Dian-Xuan et al ., 2017; Chen and Tsai, 2017). VIX Options are linked to Futures through put-call parity and lead/lag relations which are short-lived (Bollen et al.…”

Section: Introductionmentioning

confidence: 99%

“…Yamamoto and Kurozumi, 2006;Hayashi and Yoshida, 2005;Finucane, 1999). We hypothesise that like VIX Futures, VIX ETPs lead VIX (see Bollen et al, 2017 andKao et al, 2018). We investigate the influence of term structure on lead-lag relations; traders operating in segmented markets may change their positions in response to expectations of volatility, as the futures curve moves from contango to backwardation [2].…”

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confidence: 99%

Causality of price movements in VIX exchange-traded products and VIX futures contracts

O’Neill

Rajaguru

2023

JAL

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PurposeThe authors analyse six actively traded VIX Exchange Traded Products (ETPs) including 1x long, −1x inverse and 2x leveraged products. The authors assess their impact on the VIX Futures index benchmark.Design/methodology/approachLong-run causal relations between daily price movements in ETPs and futures are established, and the impact of rebalancing activity of leveraged and inverse ETPs evidenced through causal relations in the last 30 min of daily trading.FindingsHigh frequency lead lag relations are observed, demonstrating opportunities for arbitrage, although these tend to be short-lived and only material in times of market dislocation.Originality/valueThe causal relations between VXX and VIX Futures are well established with leads and lags generally found to be short-lived and arbitrage relations holding. The authors go further to capture 1x long, −1x inverse as well as 2x leveraged ETNs and the corresponding ETFs, to give a broad representation across the ETP market. The authors establish causal relations between inverse and leveraged products where causal relations are not yet documented.

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The impact of net buying pressure on VIX option prices

Chuang

Tsai

2019

Journal of Futures Markets

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This paper analyzes the impact of intraday trading activity on option prices in the Volatility Index (VIX) options market. Our results show that there is a temporal relationship between net buying pressure (NBP) and changes in implied volatility of VIX options. Moreover, an increase in NBPs lowers the next‐day delta‐hedged option returns. Using several measures proxying for limits to arbitrage, the average levels of the implied volatility curve rise when limits to arbitrage are severe. A trading strategy in the VIX futures market constructed by using the NBP generates an average annualized return of 10.09%.

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An analysis on the intraday trading activity of VIX derivatives

Cited by 5 publications

References 62 publications

Hedging performance of volatility index futures: a partial cointegration approach

Hedging performance of volatility index futures: a partial cointegration approach

Causality of price movements in VIX exchange-traded products and VIX futures contracts

The impact of net buying pressure on VIX option prices

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