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VIX changes and derivative returns on FOMC meeting days

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  • Kevin Krieger
  • Nathan Mauck
  • Denghui Chen

Abstract

We examine the link between scheduled Federal Open Market Committee (FOMC) meetings and the VIX measure. Our results indicate that VIX declines significantly on scheduled meeting dates. Unlike prior studies suggesting that the drop in VIX is mechanical, we attribute the decline to the resolution of uncertainty regarding future interest rates provided by the meetings. We examine returns to investable positions on VIX. Though a decline in the VIX level commonly occurs on FOMC meeting dates, we find that significant returns may still be garnered from taking short-VIX positions in derivative markets, even after accounting for the bid-ask spread. Copyright Swiss Society for Financial Market Research 2012

Suggested Citation

  • Kevin Krieger & Nathan Mauck & Denghui Chen, 2012. "VIX changes and derivative returns on FOMC meeting days," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(3), pages 315-331, September.
    • Handle: RePEc:kap:fmktpm:v:26:y:2012:i:3:p:315-331
    DOI: 10.1007/s11408-012-0191-4
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    Cited by:

    1. López, Raquel & Esparcia, Carlos, 2021. "Analysis of the performance of volatility-based trading strategies on scheduled news announcement days: An international equity market perspective," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 32-54.
    2. López, Raquel, 2015. "Do stylized facts of equity-based volatility indices apply to fixed-income volatility indices? Evidence from the US Treasury market," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 292-303.
    3. Krieger, Kevin & Mauck, Nathan & Vazquez, Joseph, 2015. "Comparing U.S. and European market volatility responses to interest rate policy announcements," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 127-136.
    4. Marina Tiunova, 2019. "Commodity and Financial Cycles in Resource-based Economies," Russian Journal of Money and Finance, Bank of Russia, vol. 78(3), pages 38-70, September.
    5. López, Raquel, 2018. "The behaviour of energy-related volatility indices around scheduled news announcements: Implications for variance swap investments," Energy Economics, Elsevier, vol. 72(C), pages 356-364.
    6. Jing Wang & Xiaoneng Zhu, 2013. "The reaction of international stock markets to Federal Reserve policy," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(1), pages 1-30, March.
    7. Imlak Shaikh & Puja Padhi, 2013. "Macroeconomic Announcements and the Implied Volatility Index: Evidence from India VIX," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(4), pages 417-442, November.

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    More about this item

    Keywords

    VIX; FOMC federal funds target rate; Monetary policy; Efficient markets; G14; E44;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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