Effects of nondiscretionary trading on futures prices

Michael J. O'Neill; Robert E. Whaley

doi:10.1002/fut.22377

Effects of nondiscretionary trading on futures prices

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

^*Corresponding author for this work

Bond Business School

Research output: Contribution to journal › Article › Research › peer-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 language	English
Pages (from-to)	33-68
Number of pages	36
Journal	Journal of Futures Markets
Volume	43
Issue number	1
Early online date	20 Sept 2022
DOIs	https://doi.org/10.1002/fut.22377
Publication status	Published - Jan 2023

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author = "O'Neill, {Michael J.} and Whaley, {Robert E.}",

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Effects of nondiscretionary trading on futures prices

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