1. Long‐term dynamics of the VIX index and its tradable counterpart VXX
- Author
-
Milan Bašta and Peter Molnár
- Subjects
Economics and Econometrics ,050208 finance ,Accounting ,Simple joint ,0502 economics and business ,05 social sciences ,Econometrics ,Economics ,050207 economics ,Predictability ,Implied volatility ,General Business, Management and Accounting ,Finance - 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.
- Published
- 2018
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