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Manipulation in the VIX?

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  • John M Griffin
  • Amin Shams

Abstract

At the settlement time of the VIX Volatility Index, volume spikes on S&P 500 Index (SPX) options, but only in out-of-the-money options used to calculate the VIX, and more so for options with a higher and discontinuous influence on VIX. We investigate alternative explanations of hedging and coordinated liquidity trading. Tests including those utilizing differences in put and call options, open interest around the settlement, and a similar volatility contract with an entirely different settlement procedure in Europe are inconsistent with these explanations but consistent with market manipulation. Large transient deviations in prices demonstrate the importance of settlement design. Received November 28, 2015; editorial decision June 19, 2017 by Editor Robin Greenwood.

Suggested Citation

  • John M Griffin & Amin Shams, 2018. "Manipulation in the VIX?," The Review of Financial Studies, Society for Financial Studies, vol. 31(4), pages 1377-1417.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:4:p:1377-1417.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhx085
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    Citations

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    Cited by:

    1. Zhang, Anthony Lee, 2022. "Competition and manipulation in derivative contract markets," Journal of Financial Economics, Elsevier, vol. 144(2), pages 396-413.
    2. Payzan-LeNestour, Elise & Pradier, Lionnel & Putniņš, Tālis J., 2023. "Biased risk perceptions: Evidence from the laboratory and financial markets," Journal of Banking & Finance, Elsevier, vol. 154(C).
    3. Akter, Maimuna & Cumming, Douglas & Ji, Shan, 2023. "Natural disasters and market manipulation," Journal of Banking & Finance, Elsevier, vol. 153(C).
    4. Jiling Cao & Xinfeng Ruan & Wenjun Zhang, 2020. "Inferring information from the S&P 500, CBOE VIX, and CBOE SKEW indices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(6), pages 945-973, June.
    5. Chiu, Junmao & Lien, Donald & Tsai, Wei-Che, 2023. "Global financial crisis, funding constraints, and liquidity of VIX futures," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    6. Anders Merrild Posselt, 2022. "Dynamics in the VIX complex," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(9), pages 1665-1687, September.
    7. Vladimir Atanasov & John J. Merrick & Philipp Schuster, 2023. "Mismarking in Mutual Funds," Management Science, INFORMS, vol. 69(2), pages 1275-1300, February.
    8. Atanu Saha & Burton G. Malkiel & Alex Rinaudo, 2019. "Has the VIX index been manipulated?," Journal of Asset Management, Palgrave Macmillan, vol. 20(1), pages 1-14, February.
    9. John M. Griffin & Amin Shams, 2020. "Is Bitcoin Really Untethered?," Journal of Finance, American Finance Association, vol. 75(4), pages 1913-1964, August.
    10. Dudley Gilder & Leonidas Tsiaras, 2020. "Volatility forecasts embedded in the prices of crude‐oil options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(7), pages 1127-1159, July.
    11. María T. González-Pérez, 2021. "Lessons from estimating the average option-implied volatility term structure for the Spanish banking sector," Working Papers 2128, Banco de España.
    12. Mohrschladt, Hannes & Schneider, Judith C., 2021. "Option-implied skewness: Insights from ITM-options," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    13. Wong, Patrick, 2023. "Explaining intraday crude oil returns with higher order risk-neutral moments," Journal of Commodity Markets, Elsevier, vol. 31(C).
    14. Mora-Valencia, Andrés & Rodríguez-Raga, Santiago & Vanegas, Esteban, 2021. "Skew index: Descriptive analysis, predictive power, and short-term forecast," The North American Journal of Economics and Finance, Elsevier, vol. 56(C).
    15. Hendrik Hülsbusch & Alexander Kraftschik, 2018. "Consistency between S&P500 and VIX derivatives: Insights from model‐free VIX futures pricing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(8), pages 977-995, August.
    16. Duong, Huu Nhan & Goyal, Abhinav & Kallinterakis, Vasileios & Veeraraghavan, Madhu, 2021. "Market manipulation rules and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 67(C).

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