Buying and Holding Exchange-Traded Products Based on VIX Futures

Posted in Volatility Effects


Should investors regard any of the exchange-traded products (ETP) based on S&P 500 Index option-implied volatility (VIX) futures as long-term holdings? In the May 2013 draft of his paper entitled “Trading Volatility: At What Cost?”, Robert Whaley describes these ETPs and evaluates them as buy-and-hold investments. VIX ETPs are based on VIX futures indexes with daily rebalancing, subject to management fees and expenses including commissions and trading fees, licensing fees and (for some ETPs) foregone interest income. Many of the ETPs are exchange-traded notes (ETN), secured not by underlying assets but rather only by the good faith and collateral of the issuer. Using daily price and trading data for VIX futures (starting March 2004) and options (starting February 2006) and for 30 ETPs based on VIX futures (starting January 2009) through March 2012, he finds that: (more…)

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