Effects of nondiscretionary trading on futures prices

Michael J. O'Neill, Robert E. Whaley*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper examines the effects of the nondiscretionary trading demands of volatility index (VIX) exchange-traded products (ETPs) issuers on the prices and volumes in the VIX futures. We find that the ETPs' informationless, mechanical rebalancing of futures positions to maintain the constant maturity of the index and the promised leverage ratios of the VIX ETPs have significantly positive predictive power for end-of-day futures returns. We also show that the impact on price has diminished through time from increased liquidity provided by hedge funds, and the "natural" hedging of the issuers' inverse products.

Original languageEnglish
Number of pages36
JournalJournal of Futures Markets
DOIs
Publication statusE-pub ahead of print - 20 Sep 2022

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