The economic value of VIX ETPs |
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| Affiliation: | 1. College of Business Administration, Savannah State University, Savannah, GA 31404, USA;2. Department of Finance & Economics, Georgia Southern University, Statesboro, GA 30460, USA;3. Department of Finance and Economics, University of Findlay, Findlay, OH 45840, USA;1. Aix-Marseille Université, CERGAM EA 4225, Aix-Marseille Graduate School of Management - IAE, Chemin de la Quille - Puyricard, CS 30063, Aix en Provence Cedex 2 13089, France;2. KEDGE Business School - Campus Luminy, Rue Antoine Bourdelle, 13009 Marseille, France;3. Aix-Marseille School of Economics, 5-9 Boulevard Maurice Bourdet, 13001, Marseille, France;4. THEMA, University of Cergy-Pontoise Labex MME-DII, 33, Bd du Port, Cergy-Pontoise 95011, France |
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| Abstract: | The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. 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 with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value. |
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| Keywords: | VIX VIX ETPs VIX premium Economic value Portfolio diversification |
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