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Volatility-related exchange traded assets: an econometric investigation

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  • Sentana, Enrique
  • Mencía, Javier

Abstract

We compare Semi-Nonparametric expansions of the Gamma distribution with alternative Laguerre expansions, showing that they substantially widen the range of feasible moments of positive random variables. Then, we combine those expansions with a component version of the Multiplicative Error Model to capture the mean reversion typical in positive but stationary financial time series. Finally, we carry out an empirical application in which we compare various asset allocation strategies for Exchange Traded Notes tracking VIX futures indices, which are increasingly popular but risky financial instruments. We show the superior performance of the strategies based on our econometric model.

Suggested Citation

  • Sentana, Enrique & Mencía, Javier, 2015. "Volatility-related exchange traded assets: an econometric investigation," CEPR Discussion Papers 10444, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10444
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    Cited by:

    1. Barletta, Andrea & Santucci de Magistris, Paolo & Violante, Francesco, 2019. "A non-structural investigation of VIX risk neutral density," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 1-20.
    2. León, Ángel & Ñíguez, Trino-Manuel, 2020. "Modeling asset returns under time-varying semi-nonparametric distributions," Journal of Banking & Finance, Elsevier, vol. 118(C).
    3. Cipollini, Fabrizio & Gallo, Giampiero M., 2019. "Modeling Euro STOXX 50 volatility with common and market-specific components," Econometrics and Statistics, Elsevier, vol. 11(C), pages 22-42.

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    More about this item

    Keywords

    Density expansions; Exchange traded notes; Multiplicative error model; Volatility index futures;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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