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 journalArticleAcademicpeer-review

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 languageEnglish
Pages (from-to)477-500
Number of pages24
JournalFinancial Review
Volume54
Issue number3
DOIs
Publication statusPublished - Aug 2019
Externally publishedYes

Keywords

  • market microstructure
  • price pressure
  • VIX ETPs
  • VIX futures

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