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Long‐term dynamics of the VIX index and its tradable counterpart VXX

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  • Milan Bašta
  • Peter Molnár

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.

Suggested Citation

  • Milan Bašta & Peter Molnár, 2019. "Long‐term dynamics of the VIX index and its tradable counterpart VXX," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(3), pages 322-341, March.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:3:p:322-341
    DOI: 10.1002/fut.21974
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    Cited by:

    1. James S. Doran, 2020. "Volatility as an asset class: Holding VIX in a portfolio," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(6), pages 841-859, June.

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