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The fear of fear in the US stock market: Changing characteristics of the VVIX

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  • Albers, Stefan

Abstract

By analyzing the characteristics of Cboe’s volatility-of-volatility (vol-of-vol) index (VVIX), this study reveals that most but not all stylized facts of volatility are also applicable to the vol-of-vol. The VVIX exhibits robust mean reversion, distinct jumps in both directions, an asymmetric relationship with the S&P500 index, weak day-of-the-week effect, and fast incorporation of new market information. Surprisingly, results indicate a significant upward trend in its level that stems partly from a higher variation of the VIX and a higher vol-of-vol risk premium. An increased and robust correlation with the VIX matches the evolution of the VIX options market till 2013.

Suggested Citation

  • Albers, Stefan, 2023. "The fear of fear in the US stock market: Changing characteristics of the VVIX," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002982
    DOI: 10.1016/j.frl.2023.103926
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    More about this item

    Keywords

    VIX; VVIX; Volatility-of-volatility; Implied volatility; Stylized facts;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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