Portfolio Effects of VIX Futures Index

Mitchell Ratner; Chih-Chieh (Jason) Chiu; Mitchell Ratner; Chih-Chieh (Jason) Chiu

doi:10.3934/QFE.2017.3.288

Quantitative Finance and Economics

2017, Volume 1, Issue 3: 288-299. doi: 10.3934/QFE.2017.3.288

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Research article Special Issues

Portfolio Effects of VIX Futures Index

Department of Finance and Economics, Rider University, 2083 Lawrenceville Road, Lawrenceville, NJ 08648, USA

Received: 16 May 2017 Accepted: 02 August 2017 Published: 12 October 2017

This paper tests short-term and mid-term VIX indexes as a hedge and safe haven asset against U.S. stock risk from January 2006 through July 2016. GARCH dynamic conditional correlation analysis indicates that VIX indexes are an effective hedge due to the consistent inverse relationship between the VIX indexes and stocks. VIX indexes are either a strong or weak safe haven in times of extreme stock market volatility. Additionally, VIX indexes provide a strong safe haven during recent periods of turmoil including the 2008 global financial crisis, the 2011 downgrade of the U.S. government triple-A credit rating, and the 2016 U.K. vote to leave the E.U. (Brexit).
- VIX,
- volatility,
- stock risk,
- hedge,
- safe haven
Citation: Mitchell Ratner, Chih-Chieh (Jason) Chiu. Portfolio Effects of VIX Futures Index[J]. Quantitative Finance and Economics, 2017, 1(3): 288-299. doi: 10.3934/QFE.2017.3.288

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Abstract

This paper tests short-term and mid-term VIX indexes as a hedge and safe haven asset against U.S. stock risk from January 2006 through July 2016. GARCH dynamic conditional correlation analysis indicates that VIX indexes are an effective hedge due to the consistent inverse relationship between the VIX indexes and stocks. VIX indexes are either a strong or weak safe haven in times of extreme stock market volatility. Additionally, VIX indexes provide a strong safe haven during recent periods of turmoil including the 2008 global financial crisis, the 2011 downgrade of the U.S. government triple-A credit rating, and the 2016 U.K. vote to leave the E.U. (Brexit).

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