Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5100470 | Journal of Financial Economics | 2017 | 27 Pages |
Abstract
We study the returns to investing in VIX futures, VIX Exchange Traded Notes (ETNs), and variance swaps. We document substantial negative return premia for these assets. For example, the constant maturity portfolio of 1-month VIX futures loses about 30% per year over our sample period (2006-2013). We investigate if these findings are consistent with dynamic equilibrium. We derive a model based on present value computation that endogenizes stock prices, the VIX index, and its associated derivative contracts. The model explains the negative return premia as well as several other stylized features of the VIX futures, ETNs, and variance swap data.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Bjørn Eraker, Yue Wu,