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Betting on mean reversion in the VIX? Evidence from ETP flows

Author

Listed:
  • Ole Linnemann Nielsen

    (Jyske Bank)

  • Anders Merrild Posselt

    (Aarhus University and CREATES)

Abstract

We investigate flows of VIX ETPs with long volatility exposure. We find an inverse relation between flows and the level of the VIX, implying that investors sell VIX ETPs when the VIX is at elevated levels, consistent with investors incorporating the typical mean reverting behavior of volatility. We find no evidence supporting that investors consider exposure to risk factors when they evaluate VIX ETP performance. Finally, our results suggest that large outflows following increases in the VIX may be a partial explanation of the “low premium response puzzle” in the VIX premium.

Suggested Citation

  • Ole Linnemann Nielsen & Anders Merrild Posselt, 2022. "Betting on mean reversion in the VIX? Evidence from ETP flows," CREATES Research Papers 2022-06, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2022-06
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    File URL: https://repec.econ.au.dk/repec/creates/rp/22/rp22_06.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    VIX ETPs; Flows; Asset Pricing Tests; VIX Premium;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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