Causality of price movements in VIX exchange-traded products and VIX futures contracts

Michael O'Neill, Gulasekaran Rajaguru

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Abstract

Purpose
The authors analyse six actively traded VIX Exchange Traded Products (ETPs) including 1x long, −1x inverse and 2x leveraged products. The authors assess their impact on the VIX Futures index benchmark.

Design/methodology/approach
Long-run causal relations between daily price movements in ETPs and futures are established, and the impact of rebalancing activity of leveraged and inverse ETPs evidenced through causal relations in the last 30 min of daily trading.

Findings
High frequency lead lag relations are observed, demonstrating opportunities for arbitrage, although these tend to be short-lived and only material in times of market dislocation.

Originality/value
The causal relations between VXX and VIX Futures are well established with leads and lags generally found to be short-lived and arbitrage relations holding. The authors go further to capture 1x long, −1x inverse as well as 2x leveraged ETNs and the corresponding ETFs, to give a broad representation across the ETP market. The authors establish causal relations between inverse and leveraged products where causal relations are not yet documented.
Original languageEnglish
Pages (from-to)1-17
Number of pages17
JournalJournal of Accounting Literature
Early online date12 Apr 2023
DOIs
Publication statusPublished - 12 Apr 2023

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