Long-term dynamics of the VIX index and its tradable counterpart VXX |
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| Authors: | Milan Bašta Peter Molnár |
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| Affiliation: | 1. Department of Statistics and Probability, Faculty of Informatics and Statistics, University of Economics, Prague, Czech Republic;2. UiS Business School, University of Stavanger, Stavanger, Norway |
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| Abstract: | We study the relationship of the VIX index and the exchange-traded note VXX on various timescales. We find that changes of VIX and VXX are correlated only contemporaneously on timescales of days, but VIX leads VXX on timescales of months. Next, we construct a simple joint model for VXX and VIX which replicates all the key characteristics of these two time series, but in which VIX and VXX are related only via a correlated error term. Therefore, VIX cannot be used as a predictor of VXX and there is no apparent trading profit opportunity. |
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| Keywords: | comovement implied volatility predictability VIX VXX |
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