Does increased hedging lead to decreased price efficiency?: The case of VIX ETPs and VIX futures

Adrian Fernandez-Perez; Bart Frijns; Alireza Tourani-Rad; Robert I. Webb

doi:10.1111/fire.12195

Does increased hedging lead to decreased price efficiency? The case of VIX ETPs and VIX futures

Adrian Fernandez-Perez, Bart Frijns^*, Alireza Tourani-Rad, Robert I. Webb

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

3 Citations (Web of Science)

Abstract

We examine the impact of the introduction of VIX exchange‐traded products (ETPs) on the information content and pricing efficiency of VIX futures. We document that trades in VIX futures have become less informative and that pricing errors exhibit more persistence after the introduction of VIX ETPs. In addition, we observe that the price process of the VIX futures has become noisier over time. These findings suggest that the introduction of the VIX ETPs had a prominent effect on the properties and dynamics of the VIX futures.

Original language	English
Pages (from-to)	477-500
Number of pages	24
Journal	Financial Review
Volume	54
Issue number	3
DOIs	https://doi.org/10.1111/fire.12195
Publication status	Published - Aug 2019
Externally published	Yes

Keywords

FLOW
MARKET
OPTIONS
VIX ETPs
VIX futures
VOLATILITY
market microstructure
price pressure

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10.1111/fire.12195

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@article{c46238cec36d40f2a1269fbc7d7cd43a,

title = "Does increased hedging lead to decreased price efficiency?: The case of VIX ETPs and VIX futures",

abstract = "We examine the impact of the introduction of VIX exchange‐traded products (ETPs) on the information content and pricing efficiency of VIX futures. We document that trades in VIX futures have become less informative and that pricing errors exhibit more persistence after the introduction of VIX ETPs. In addition, we observe that the price process of the VIX futures has become noisier over time. These findings suggest that the introduction of the VIX ETPs had a prominent effect on the properties and dynamics of the VIX futures.",

keywords = "FLOW, MARKET, OPTIONS, VIX ETPs, VIX futures, VOLATILITY, market microstructure, price pressure",

author = "Adrian Fernandez-Perez and Bart Frijns and Alireza Tourani-Rad and Webb, {Robert I.}",

year = "2019",

month = aug,

doi = "10.1111/fire.12195",

language = "English",

volume = "54",

pages = "477--500",

journal = "Financial Review",

issn = "0732-8516",

publisher = "Wiley-Blackwell",

number = "3",

}

TY - JOUR

T1 - Does increased hedging lead to decreased price efficiency?

T2 - The case of VIX ETPs and VIX futures

AU - Fernandez-Perez, Adrian

AU - Frijns, Bart

AU - Tourani-Rad, Alireza

AU - Webb, Robert I.

PY - 2019/8

Y1 - 2019/8

N2 - We examine the impact of the introduction of VIX exchange‐traded products (ETPs) on the information content and pricing efficiency of VIX futures. We document that trades in VIX futures have become less informative and that pricing errors exhibit more persistence after the introduction of VIX ETPs. In addition, we observe that the price process of the VIX futures has become noisier over time. These findings suggest that the introduction of the VIX ETPs had a prominent effect on the properties and dynamics of the VIX futures.

AB - We examine the impact of the introduction of VIX exchange‐traded products (ETPs) on the information content and pricing efficiency of VIX futures. We document that trades in VIX futures have become less informative and that pricing errors exhibit more persistence after the introduction of VIX ETPs. In addition, we observe that the price process of the VIX futures has become noisier over time. These findings suggest that the introduction of the VIX ETPs had a prominent effect on the properties and dynamics of the VIX futures.

KW - FLOW

KW - MARKET

KW - OPTIONS

KW - VIX ETPs

KW - VIX futures

KW - VOLATILITY

KW - market microstructure

KW - price pressure

U2 - 10.1111/fire.12195

DO - 10.1111/fire.12195

M3 - Article

SN - 0732-8516

VL - 54

SP - 477

EP - 500

JO - Financial Review

JF - Financial Review

IS - 3

ER -

Does increased hedging lead to decreased price efficiency? The case of VIX ETPs and VIX futures

Abstract

Keywords

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