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Application of VIX and entropy indicators for portfolio rotation strategies

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  • Jadhao, Gaurav
  • Chandra, Abhijeet

Abstract

In our study, we use sample entropy and approximate entropy indicators − derived from the India Volatility Index (India VIX) − to explore the feasibility of style, size and time horizon-based portfolio rotation strategies. We show that these two entropy-based indicators are significantly and strongly related to portfolio rotation strategy based on style and size than the trading strategies based on signals derived from percentage change in India VIX. Finally, the comparative portfolio performances show that the trading strategies based on sample entropy outperform those based on VIX change. These results provide evidence of the prospect for new investment and diversification strategies in the otherwise less-studied emerging markets.

Suggested Citation

  • Jadhao, Gaurav & Chandra, Abhijeet, 2017. "Application of VIX and entropy indicators for portfolio rotation strategies," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1367-1371.
    • Handle: RePEc:eee:riibaf:v:42:y:2017:i:c:p:1367-1371
    DOI: 10.1016/j.ribaf.2017.07.074
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    References listed on IDEAS

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    1. Steve Pincus, 2008. "Approximate Entropy as an Irregularity Measure for Financial Data," Econometric Reviews, Taylor & Francis Journals, vol. 27(4-6), pages 329-362.
    2. James Kozyra & Camillo Lento, 2011. "Using VIX data to enhance technical trading signals," Applied Economics Letters, Taylor & Francis Journals, vol. 18(14), pages 1367-1370.
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    Cited by:

    1. Vera Ivanyuk, 2022. "Proposed Model of a Dynamic Investment Portfolio with an Adaptive Strategy," Mathematics, MDPI, vol. 10(23), pages 1-19, November.

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    More about this item

    Keywords

    India VIX; Sample entropy; Approximate entropy; Portfolio management; Trading strategy;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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