Volatility and the VIX
What the VIX and realized volatility say about future returns, how volatility funds behave, and whether managing exposure by volatility helps.
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- Short-term VIX Calendar Effects VIX exhibits a Monday close-to-close pop and OE-1 decline, but VXX futures data suggests limited exploitability (VIX 1990-2015, VXX 2009-2015; day-of-week and options expiration analysis; 77-130 monthly observations).
- VXX and XIV Returns by Day of the Week VXX returns are uniformly negative and most negative on Mondays/Tuesdays, while XIV shows the opposite pattern with positive returns largest early week (VXX Feb 2009–Jul 2017; XIV Dec 2010–Jul 2017; daily analysis).
- Forecasting VIX Spikes VIX spikes correlate with low-volatility periods in VIX and VVIX standard deviations, but signals cluster and lack fixed timing intervals (70 spikes; May 2006–June 2016; descriptive; not a trading test).
- Timing and Hedging the Roll Return for VIX Futures VIX futures contango/backwardation predicts exploitable returns; hedged strategy generated 53% annual compound return (2006-2011; short VIX futures in contango, long in backwardation, hedged with E-mini S&P 500 futures).
- VIX and VXX Behaviors Around Holidays VIX jumps 1.5% on average the day after holidays but VXX does not capitalize on this pattern, suggesting futures traders anticipate the spike (VIX 1990–2016, VXX 2009–2016; 214 and 62 holiday observations respectively).
- VIX Day-of-the-Week Effects VIX exhibits day-of-week patterns with Monday elevation and Wednesday/Friday depression, showing U-shaped weekly changes after outlier control (2004-2008; S&P 500 shows no significant weekly effects).
Volatility ETFs and ETNs
25 articlesVXX, SVXY, UVXY and other funds built on VIX futures.
- Using SVXY to Capture the Volatility Risk Premium Monthly Skim (SVXY gains above the initial stake moved to BIL monthly; 0.2% switching frictions) ended with a higher terminal value than Buy and Hold SVXY under the old -1.0x…
- Corroborating Findings that the S&P 500 Index Predicts VIX Futures Daily SPY returns offered little predictive power for next-day VIXY or SVXY returns beyond a strong same-day correlation (negative for VIXY, positive for SVXY); lead-lag correlations looked like noise (Jan…
- Use Short-term S&P 500 Index Indicators to Predict VIX Futures? An S&P 500 RSI(2) rule (short VIX futures if below 30, long if above 90, else cash; daily) produced 225% vs 213% gross profit and -28% vs -69% max drawdown…
- Shorting VXX with Crash Protection VXX shorting with monthly crash protection (switching to cash after negative returns) generated attractive returns but still suffered material drawdowns (Feb 2009–Mar 2020; Fixed Reset strategy preferred).
- Exploiting VIX Futures Roll Return with ETNs SVXY-Cash strategy (switching based on VIX futures roll return sign) outperformed buy-and-hold SVXY (38.0% vs 14.7% CAGR; Oct 2011-Dec 2019; -58% vs -93% MaxDD; 0.2% trading friction assumption).
- Identifying VXX/SVXY Tendencies VXX futures roll return shows modest predictive power for SVXY returns over 1-21 days, with highest roll returns associated with weaker SVXY performance (2009-2019; correlation analysis; VIX level, VRP, VVIX…
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- Improved Use of VIX Futures for Hedging the Stock Market The Enhanced Portfolio (dynamically long/short VIX30 based on volatility risk premium) outperformed S&P 500 (1.19 vs 0.58 Sharpe ratio; Jan 2007-Dec 2017; daily rebalancing with risk parity weighting).
- Correlated Unwind of Short Volatility? Bhansali and Harris argue pervasive short volatility exposure ($1.5+ trillion across horizons/strategies) creates correlated unwind risk, linking mechanized selling rules to potential volatility spikes (2017; conceptual framework).
- VXX and XIV Returns by Day of the Week VXX returns are uniformly negative and most negative on Mondays/Tuesdays, while XIV shows the opposite pattern with positive returns largest early week (VXX Feb 2009–Jul 2017; XIV Dec 2010–Jul 2017;…
- VIX and VXX Behaviors Around Holidays VIX jumps 1.5% on average the day after holidays but VXX does not capitalize on this pattern, suggesting futures traders anticipate the spike (VIX 1990–2016, VXX 2009–2016; 214 and 62…
- Change in VIX Futures Term Structure as Stock Market Return Predictor VIX futures term structure changes show weak negative relationship with future S&P 500 returns at weekly-to-bimonthly horizons (Mar 2004–Jul 2010; in-sample regressions; descriptive; not a trading test).
- Exploiting VIX Futures Roll Return with Exchange-traded Products VIX futures roll yield trading strategy using XIV/VXX outperformed buy-and-hold (69% annualized return unhedged; late 2006–Apr 2014; contango/backwardation threshold signals; includes simulated pre-inception data).
- Exploiting VIX Futures Predictability with VIX Options VIX option strategies exploiting futures roll patterns generated gross returns of 29-42% (backwardation calls), 6.8-11% (contango puts), and 10-21% (high volatility premium puts) versus -5.6% to 2% for random entry…
- Timing VIX Futures with the Futures-Spot Ratio VIX futures timing strategy using futures-spot ratio outperformed cash (4.3% vs 0% monthly excess return; Mar 2004–Jul 2014; sell futures when ratio >1, hold cash otherwise; R² 0.16).
- Simple Tests of VXX as Diversifier Adding VXX to diversified portfolios reduced both return and volatility, with return-to-risk ratio falling from 0.34 to 0.17 (Feb 2009–Apr 2013; equal-weighted monthly rebalancing; 9 asset classes).
- Buying and Holding Exchange-Traded Products Based on VIX Futures VIX short-term futures ETPs like VXX lost 94% over six years ending March 2012, while VIX mid-term futures ETPs gained 5.9%, both maintaining strong negative correlation with stocks (-0.78 vs…
- Short-term VXX Shorting Signals? Daily VXX momentum shorting strategy marginally outperformed continuous shorting (0.35% vs 0.29% mean daily return; Jan 2009–Apr 2013; go short when VXX same-day return negative; 496 switches).
- Exploit Short-term VIX Reversion with VXX? VIX shows short-term mean reversion over 8 days after extreme moves, but VXX fails to exploit this pattern with negative gross returns across all quintiles (Feb 2009–Dec 2012; daily data).
- Exploit VXX Deviation from Indicative Value? VXX mispricing signals based on deviations from indicative value show inconsistent profitability, with short trades averaging -0.2% to 1.5% net returns across thresholds (Jan 2009–Sep 2012; next-day trades; 0.1% assumed…
- Hedging Stock Portfolios with VIX Futures Index Products Medium-term VIX futures (VXZ proxy) boosted stock portfolio Sharpe ratios while short-term futures (VXX proxy) reduced them due to negative roll yield (Dec 2005–Apr 2012; 26-week lagged regressions).
- Timing and Hedging the Roll Return for VIX Futures VIX futures contango/backwardation predicts exploitable returns; hedged strategy generated 53% annual compound return (2006-2011; short VIX futures in contango, long in backwardation, hedged with E-mini S&P 500 futures).
- Enhanced VIX Futures ETNs Second-generation VIX futures ETNs outperformed first-generation ones (XVIX 1.21 vs VXX -0.77 Sharpe ratio; Mar 2004-Mar 2012; exploiting term structure convexity; replicated using VIX futures data).
- Diversification with VIX Futures and Related ETNs VIX futures diversification beats equity-only portfolios solely during crisis periods, with VXX declining -92% and VXZ declining -46% since Apr 2009 (Apr 2004-Dec 2011; constant maturity methodology; 3 subperiods).
- Short-term VIX Futures Performance Short-term VIX futures consistently underperformed VIX (-0.23% vs 0.23% average daily return; Mar 2004–Mar 2012; nearest-to-maturity contracts with frictionless rolling; $100K declined to $158).
- What Happens When VXX Moves the Wrong Way? VXX trading strategy (buy VXX after SPY and VXX both rise; sell after both fall) generated 0.13% average daily return with -0.01 correlation to SPY (Jan 2009–Feb 2012; signals 18%…
The VIX as a signal
38 articlesWhether VIX levels, spikes and term structure predict stock returns.
- Asset Class ETF Interactions with VIX Asset class ETF returns show moderately negative lead-lag correlations with future VIX, strongest for equities and missing for TLT and GLD; best and worst ETFs differ across low, mid and…
- VVIX/VIX as a Return Indicator? Monthly VVIX/VIX and its monthly change show no reliable relationship with next-month SPY returns; SPY returns lead VVIX/VIX, and quintile results are unsystematic (Sep 2006–Mar 2025; correlations and quintile sorts;…
- VVIX as a Return Indicator? Monthly VVIX and monthly change in VVIX showed no reliable predictive relationship with next-month SPY returns; quintile averages were erratic (Sep 2006–Mar 2025; end-of-month lead-lag correlations and quintile sorts; descriptive,…
- VIX Seasonality VIX average monthly changes are larger and more variable in February and July–October (VIX since Jan 1990; VIXY since Jan 2011; SVXY since Oct 2011; all through Jun 2024); VIXY…
- Exploit VIX Percentile Threshold Rule Out-of-Sample? VIX Percentile Strategy (monthly SPY or T-bills by inception-to-date VIX percentile threshold; 70th-90th percentiles and 0-3 skip months tested) had lower CAGR but shallower MaxDD than buy-and-hold SPY (9.7% CAGR,…
- Using VIX and Investor Sentiment to Explain Stock Market Returns A joint high-VIX threshold (~80th percentile) and linear Baker-Wurgler sentiment model explains 4.7%, 10.8%, 19.2% and 28.7% of future S&P 500 excess return variation at 1, 3, 6 and 12…
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- VIX and Future Stock Market Returns VIX level shows little relationship with S&P 500 future returns; R-squared is 0.003 at 5 days and exceeds 1% only at 126 days (0.036) (Jan 1990–Sep 2022; daily closes; non-overlapping…
- Cyclical-Defensive Sector Rotation Based on VIX Level VIX-based cyclical-defensive sector rotation generated higher reward-to-risk than S&P 500 (0.71 vs 0.54; Jan 2005–Oct 2020; 100% allocation to favored sectors, equal-weighted, rolling optimization; gross returns).
- S&P 500 Volatility Indexes as an Asset Class S&P 500 volatility indexes delivered poor returns vs S&P 500 (-48.7% to 5.8% CAGR vs 9.5%; Apr 2008–Mar 2019), with no index reflecting more than one of five key option…
- Revisiting VIX as Stock Return Predictor VIX shows statistically significant positive relationship with S&P 500 returns at 1-day and 5-day horizons, concentrated in 2-year VIX highs comprising <1% of observations (Dec 1991–Nov 2017; rank-based analysis).
- Average Call-Put Implied Volatility Spread and Future Stock Market Return Aggregate implied volatility spread (average call-put IV difference across stocks) explains 12.4% of quarterly stock return variation out-of-sample, achieving 0.65 Sharpe ratio vs 0.43 for market (Jan 1996–Dec 2015).
- Slope of VVIX Term Structure as Return Predictor VVIX term structure slope predicts S&P 500 straddle returns; long/short strategy achieves 1.50 Sharpe ratio vs 1.20 short-only for 1-month straddles (Sep 2007–Aug 2014; 75th percentile threshold; gross returns).
- Forecasting VIX Spikes VIX spikes correlate with low-volatility periods in VIX and VVIX standard deviations, but signals cluster and lack fixed timing intervals (70 spikes; May 2006–June 2016; descriptive; not a trading test).
- Implied Volatility Trading Strategy for Commodity Futures Detrended implied volatility strategy outperformed four of five commodity futures strategies (12.7% vs 10.4% annualized return; Jan 1990–Oct 2014; long lowest/short highest quartile, monthly rebal; 25 commodities).
- Intraday and Intraweek VIX Behaviors VIX drifts down -0.80% intraday and -3% weekly, declining most on Monday-Tuesday with weekend surges (Sep 2003–Dec 2013; one-minute data; descriptive patterns, not trading test).
- Exploitable VIX Trends? VIX SMA trend signals did not materially improve timing for SPY pairs but XIV-SHY switching generated 33.3% vs 26.9% CAGR (Dec 2010–Sep 2016; majority-rules SMA signals; 0.1% switching frictions; breakeven…
- Stock Market Performance Around VIX Peaks Stock markets exhibit abnormally positive returns after VIX peaks, averaging 0.83% the day after peak (Jan 1990–Dec 2015; formal peak detection with 20% threshold; exploitation limited by identification lag).
- Short-term VIX Calendar Effects VIX exhibits a Monday close-to-close pop and OE-1 decline, but VXX futures data suggests limited exploitability (VIX 1990-2015, VXX 2009-2015; day-of-week and options expiration analysis; 77-130 monthly observations).
- VIX Term Structure Slope and Variance Asset Future Returns VIX term structure slope predicts next-day excess returns of variance assets, with low slopes yielding 0.29%-1.81% higher returns than high slopes across 18 asset/maturity combinations (1996-2013; quintile analysis).
- Stock Return-Implied Volatility Two-way Feedback Stocks with highest prior-month call volatility increases outperformed lowest by ~1% monthly (risk-adjusted; 1996-2011; decile long-short of near-term 0.5 delta options; 0.90 Sharpe ratio gross).
- News, VIX and Stock Market Returns Aggregate unscheduled firm news sentiment and VIX extremes correlate with S&P 500 returns; combined low VIX/sentiment generated 1.8% avg monthly return vs high readings' 7.7% (Jan 2000–Dec 2010; descriptive).
- VIX Streaks VIX exhibits streak reversion but VXX shows momentum rather than reversion, suggesting futures markets anticipate VIX behavior (VIX: Jan 1990–Nov 2012; VXX: Jan 2009–Nov 2012; streak analysis).
- Daily, Overnight and Intraday VIX Tendencies VIX exhibits predictable patterns with Monday levels averaging 0.40-0.72 points higher and weekend overnight changes five times larger than weeknights (0.68 vs 0.12; Jan 2005–Jun 2010; minute-level data).
- Economic Announcements and VIX VIX declines by 0.4%-1.8% on U.S. economic announcement dates, with uncertainty relief independent of good/bad news (1994–2012; close-to-close changes for GDP, CPI, PPI, employment; R² = 0.00 for announcement surprise…
- Election Season Stock Market VIX Drivers During presidential campaigns, VIX correlates with political uncertainty but corporate earnings changes dominate as the primary driver (1992-2008; five election campaigns; Pearson correlations).
- VIX Day-of-the-Week Effects VIX exhibits day-of-week patterns with Monday elevation and Wednesday/Friday depression, showing U-shaped weekly changes after outlier control (2004-2008; S&P 500 shows no significant weekly effects).
- Stock Returns and Changes in Implied Volatility Stocks with large increases in call-implied volatility outperform those with decreases by 0.97% next-month gross return (Jan 1996–Sep 2008; monthly quintile portfolios; broad U.S. stock sample).
- Exploring Monthly VIX Predictive Power Monthly VIX metrics showed minimal predictive power for SPY next-month returns, with R-squared values of 0.00-0.04 that often dropped to 0.00 when excluding single extreme observations (Jan 1993–Sep 2011; in-sample).
- Exploiting the Implied Volatility Term Structure Implied volatility term structure slope predicts option returns, with straddle hedge strategies generating 27.1% average monthly gross returns (12.3% net; Jan 1996-Jun 2007; long high-slope/short low-slope stocks; 260 stocks monthly).
- Use VIX Technical Signals to Trade Stock Indexes? VIX technical signals outperformed buy-and-hold for stock indexes in 22 of 27 cases but effectiveness diminished during low volatility periods (Jan 1999–Jul 2009; 9 rules across SPY/NASDAQ/DJIA).
- VIX After Big Change Days VIX partially reverts after dramatic daily changes (-4.32% average next-day change after 4+ std dev spikes; +reversion after drops; Jan 1990–Aug 2011; high variability, small samples).
- VIX-signaled Trading Strategy VIX-based strategy (S&P 500 when VIX in upper classes, cash when lower) outperformed buy-and-hold during 2-year out-of-sample test; VIX classes based on 24-month percentile ranking (Jan 1990-Jan 2007; 3-month return…
- Are VIX Options Mispriced? VIX options appear mispriced versus spot VIX because they price off VIX futures reflecting expected expiration values, not current VIX levels, accounting for volatility mean reversion (conceptual explanation; Dec 2009…
- Extracting the Irrational Part of VIX The Risk Sentiment Index (RSI), measuring irrational risk in VIX after accounting for predictive variables, correlates -0.29 with daily S&P 500 returns (1990-2007; coincident relationship; descriptive study).
- History and Meaning of VIX VIX creator Robert Whaley finds VIX empirically reasonable as a predictor of future stock volatility and confirms mean-reverting behavior with asymmetric S&P 500 relationship (Jan 1986–Oct 2008; descriptive study).
- Short-term Relative VIX Level as a Trading Signal TradingMarkets 5% VIX rule underperformed buy-and-hold (196% vs 322% total return; 1990-2007; trading when VIX 5%+ above 10-day MA, 5-day holds; 492 executable signals after removing overlaps).
- A Short-term VIX Trading Strategy That Works? VIX signals above/below 75-day MA by 10-20% work for short-term large-cap/small-cap switching, with better odds during high-VIX regimes (early 1990s-2004; 1-5 day holding periods; long/short pairs).
- VIX as an Indicator for Different Kinds of Portfolios Current VIX is positively associated with S&P 500 returns over the next 22 and 44 trading days, with a stronger relationship for high-beta than low-beta stocks (June 1986-June 2005; descriptive;…
Volatility targeting
8 articlesScaling market exposure up or down with measured volatility.
- Inverse-volatility Weighting of Volatility Assets Inverse-volatility weighting of long volatility assets was associated with higher gross Sharpe ratios than constant-weight benchmarks (variance swaps 1.61-1.76 vs 1.54; 1990-2023; VIX futures 2004-2023; S&P 500 straddles 1996-2022; monthly;…
- Volatility-adjusted Retirement Income Streams Maximizing volatility-adjusted coverage ratio (coverage ratio divided by portfolio volatility) rather than coverage ratio alone is associated with lower optimal stock allocations (U.S. 1872–2022; 21 other countries 1900–2019; 30-year retirements;…
- Long-only Stock Momentum with Volatility Timing W10-Timed (long-only momentum with volatility exit at 27% threshold) avoided momentum crashes and performed competitively with broad markets (2005-2018; 6-month volatility lookback; gross returns).
- Does Volatility Management Work for Equity Factor Portfolios? Volatility-managed equity factor portfolios underperformed unmanaged counterparts in out-of-sample tests for 72 of 103 strategies (gross Sharpe ratios and CERs; 103 anomaly-based hedge portfolios; monthly inverse-variance scaling).
- Benefits of Volatility Targeting Across Asset Classes Volatility targeting improved Sharpe ratios from 0.40 to 0.48-0.51 for U.S. stocks and reduced crash risk across most asset classes (1927-2017; exposure scaled inversely to forecasted volatility to maintain 10%…
- Volatility Scaling for Momentum Strategies? CVS and DVS momentum strategies delivered higher returns (15.3% vs 11.5% annualized) but suffered poor risk-adjusted performance with deep drawdowns (-64%, -53%) versus Buy-and-Hold strategies (Nov 1991–May 2017; 55 futures).
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- Corporate Bond Volatility-adjusted Credit Premium Momentum Volatility-adjusted credit premium momentum outperformed among U.S. corporate bonds (0.27% monthly gross 7-factor alpha; Jan 1994–Dec 2015; 6/1-month formation/holding, inverse volatility weighting).
- Best Way to Implement Volatility Weighting? An optimized modified volatility weighting strategy outperformed conventional volatility targeting across trading friction levels (six Fama-French portfolios; Jan 1989–Dec 2014; daily rebalancing optimal).
Volatility and returns
91 articlesHow realized volatility relates to future returns and risk.
- Are Low Volatility Stock ETFs Working? Eight low volatility ETFs underperformed their benchmarks on CAGR (equal-weighted portfolio 8.2% vs 10.1% for benchmarks; max drawdown -21% vs -25%; monthly rebalanced; histories vary, through May 2026).
- Practical Capture of the Volatility Risk Premium? Blending a modest slice of Strategy 4 (VIXSHORT/VIXLONG ETN allocation using expected VRP, VIX term structure and VIX level) with a passive SPY portfolio boosted SPY's Sharpe ratio by 20%…
- A Low-volatility Factor for Standard Models of Stock Returns? Adding a low-volatility factor to long-minus-short gross-return factor models raised maximum Sharpe ratios by only 0.006, but with net-return market-hedged long legs it raised them about 13% on average (U.S.…
- Machine Learning Predictions of Stock Returns and Volatilities Double-sorting U.S. stocks on neural-network-predicted volatility and return yields long-short decile portfolios with gross Sharpe ratios of about 3.0 (equal-weighted) and 1.5 (value-weighted), 1.0 and 0.4 above return-only sorts (1991–2020;…
- Leveraging Low-volatility Stock Portfolios Leveraging a multifactor low-risk global stock portfolio to beta 1.0 (monthly rebalanced, long-only, tracking error controlled) produced 15.2% vs 9.9% gross annualized return for the cap-weighted benchmark (developed markets, Dec…
- Ways to Exploit the Low-volatility Effect Three allocations that include a low-volatility strategy (100 lowest 36-month-volatility stocks of the largest 1,000 U.S. stocks) had higher Sharpe ratios than a 60% stocks/40% bonds portfolio (0.70, 0.75, 0.82…
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- Validating Use of Wilder Volatility Stops to Time the U.S. Stock Market Wilder Volatility Stop strategy (SPY-cash timing; 5-day ATR x 2.5 risk factor; daily close signals) slightly raised gross CAGR versus buy-and-hold SPY and materially cut volatility and MaxDD (Jan 1993-Oct…
- Volatility of Volatility as Stock Market Return Predictor A strategy exiting SPY after months when volatility of VIX hits its 12-month high beat buy-and-hold SPY (11.1% vs 10.4% net CAGR; Jan 1993–Aug 2024; 0.1% switching cost, zero cash…
- Returns and Volatilities of ETF Option Strategies Covered calls on equity and bond ETFs tended to lower volatility and return versus buy-and-hold, while protective puts consistently raised volatility, usually with lower return (IWF/VTV/IVV/BND/JNK/AGG options held to expiration;…
- Effects of Market Volatility on Market Trend Strategies Multi-SMA trend factor hedge portfolio (long/short top/bottom decile of U.S. stocks) averaged 2.66% monthly gross return after high-volatility months vs 1.64% after low-volatility months (Jan 1926–Dec 2022; gross, full-sample median…
- Gold Plus Low-volatility Stocks? Adding a 10% gold allocation to a 45%/45% U.S. stock/bond portfolio reduced downside volatility to 3.7% versus 3.9% for 50%/50% stocks/bonds, with loss probability 22.4% vs 26.6% (real returns, 1-year…
- Using Wilder Volatility Stops to Time the U.S. Stock Market A Wilder Volatility Stop timing strategy (5-day ATR ×2.5 trend breakout/breakdown; daily SPY/cash) reports higher gross returns, lower volatility and shallower drawdowns than buy-and-hold SPY (2000–2019; ignores dividends and costs;…
- Human Passions and Asset Volatility Derman's December 2022 paper argues that standard deviation is an inadequate equity risk measure given non-normal returns and that volatility-trading models are prone to failure, advising caution with complex, abstract…
- Resilience of Low-volatility Stocks Low-volatility portfolios showed 20% to 90% lower betas than the market to the specified risk factors (MSCI USA Minimum Volatility, S&P 500 Low Volatility, volatility deciles; Jan 1991-Dec 2021; univariate…
- Testing the Low-volatility Effect on Chinese A Shares Low-volatility China A shares outperformed high-volatility shares (16.1% annualized; Nov 2000–Dec 2018; volatility-sorted deciles; ~1,200 MSCI China A Onshore stocks).
- Simple Volatility Harvesting? Stop-gain rules marginally outperformed SPY buy-and-hold ($11.20+ vs $11.20 terminal value; Feb 1993–Feb 2020; exit if monthly return exceeds threshold, re-enter month-end; thresholds 1–15%).
- Overview of Low-volatility Investing Low-volatility stocks outperformed within asset classes with the volatility factor showing positive gross premiums in every decade since 1929 (5.8% average annual premium; 1940-2018; long-short factor construction).
- Book-to-Market Volatility as Stock Return Predictor Book-to-market volatility hedge portfolio (long high/short low decile) generated 1.04% gross monthly alpha vs 7-factor model (Jan 1986–Dec 2016; value-weighted, monthly rebalancing; broad U.S. non-financial stocks).
- Equity Index Options to Exploit Stock Market Volatility Spikes? Delta-hedged equity index options are profitable only during the largest volatility spikes (top decile, 6.6% annualized return vs -2.7% other deciles; Jan 1996–Dec 2016; monthly portfolio of puts/calls).
- Simple Volatility-Payout-Momentum Stock Strategy Conservative Formula (low volatility + high net payout yield + momentum, top 100 of largest 1000 stocks) outperformed value-weighted market (15.1% vs 9.3% gross CAGR; 1926–2016; quarterly rebalancing; U.S. stocks).
- Managing Volatility to Suppress U.S. Stock Market Tail Risk S&P 500 managed volatility strategy (daily rebalancing to target volatility) did not materially improve gross Sharpe ratio since 1960 but suppressed kurtosis and increased skewness (July 1926–Nov 2016; daily rebalancing).
- Slow Down or Speed Up SACEMS with Volatility? SACEMS dynamic volatility-based lookback intervals underperformed fixed 5-month intervals, with Dynamic Slow-Down consistently worse and Dynamic Speed-Up mixed (Feb 2006–Aug 2017; momentum strategy across 9 ETFs; monthly rebalancing).
- Volatility Patterns as Bubble/Crash Indicators Volatility fails to predict bubble bursts, with two-thirds of 40 bubbles ending during low volatility periods; volatility spikes occur during crashes, not beforehand (Oct 1929–Sep 2011; event study).
- Market Volatility as Crisis Predictor Prolonged periods of below-trend stock market volatility increase likelihood of future banking crises, with strongest predictive power after five consecutive low-volatility years (60 countries; 1800-2010; HP-filtered annual volatility vs 262…
- Testing Lagged Volatility-Size Effect Relationship Robustness with ETFs ETF-based size effect (IWM-IWB) shows higher reward-to-risk ratios following high VIX months, with 1-2 month lags optimal and relationship strongest at 0.75-1.0 standard deviations above average (May 2000–Sep 2016).
- Expected Stock Market Volatility and the Size Effect The size effect occurs only after months with expected volatility in the top 20%, generating 5.4% vs 0.8% 6-month SMB returns (1960-1989 RV) and 5.9% vs -0.2% (1990-2014 VIX; skip-month…
- Stock Returns After Idiosyncratic Volatility Spikes Stocks with lowest idiosyncratic volatility shocks outperformed highest shock stocks (1.67% vs 0.64% next-month returns; 1964–2012; -0.93% 4-factor alpha for low-minus-high decile spread).
- Low-volatility Effect Unexplained? Low-volatility stocks maintain outperformance unexplained by the Fama-French five-factor model, with volatility-based effects dominating beta-based effects (July 1963–December 2015; monthly regressions on U.S. stocks).
- Understanding Volatility Trading Strategies Short volatility strategies outperformed SPY (straddles: 7.43% vs 6.58% annual return, 8.0% vs 18.0% volatility; strangles: 8.55% return, 7.0% volatility; Jan 2005–Jan 2016; monthly SPY options with daily delta hedging).
- Correlation and Volatility Effects on Stock Pairs Trading Pairs trading performance relates positively to both pair correlation and summed volatilities, with 20 of 25 correlation/volatility-sorted portfolios outperforming conventional pairs trading (0.18%-2.09% vs 0.37% monthly risk-adjusted returns; Jan 1991-Dec…
- Volatility Risk Premium an Exploitable Stock Market Predictor? The Monthly VRP Strategy outperformed SPY buy-and-hold (11.1% vs 8.9% CAGR; Jan 1993–Apr 2016; exits stocks when VRP falls 2+ standard deviations below average; 0.1% switching costs).
- Asset Class Momentum Interaction with Market Volatility Asset class momentum shows inconsistent interactions with VIX across measurement intervals; S&P 500 momentum works best at middle/high VIX levels while gold momentum favors below-average VIX (Jan 1990–Apr 2016; in-sample…
- Varying Risk Inversely with Recent/Expected Volatility Volatility-managed portfolios that scale exposure inversely to past-month realized variance boosted gross Sharpe ratios by 50-100% over buy-and-hold across stock factors (1926-2015; monthly rebalancing; factor portfolios from Kenneth French data).
- Distinguishing Low-volatility from Value Low-volatility portfolios outperformed the broad U.S. stock market by gross Sharpe ratio (1926–2014; lowest 30% volatility stocks, monthly rebalancing); three-factor alphas remain statistically significant.
- Stock Return Anomalies Just Artifacts of Premium Volatility? Yeh finds that size, value, momentum, investment, profitability, short-term reversal and long-term reversion anomaly alphas lose statistical significance when accounting for time-varying Fama-French factor premiums (Jan 1964–Dec 2013; 60-month rolling…
- Achieving a Low-volatility Stock Portfolio Efficiently Van Vliet finds 25% volatility reduction achievable with 30% annual turnover for low-volatility stock portfolios (500 of 3,000 global stocks; Jan 1989–Dec 2013; empirical tests plus literature review).
- Low-volatility Effect Across Country Stock Markets? High-risk country stock markets outperformed low-risk markets by Sharpe ratio (Feb 1999–Sep 2014; quintile portfolios, monthly rebalancing; 78 country indexes), contradicting low-volatility anomaly at country level.
- Post-financialization Commodity Return and Volatility Facts Commodity futures show factor structure in returns (4 components explain 62% of variation) and maintain equity diversification post-financialization, with average 0.25 cross-commodity correlation (Jan 2004–Dec 2013; 15 series).
- Expected Volatility of Stock Market Volatility as a Predictor Higher VVIX predicts more negative returns for hedged S&P 500 Index and VIX futures options, with VIX futures options averaging -0.57% to -1.41% monthly (Feb 2006–Jun 2013; daily-hedged portfolios).
- Global Low-volatility Stock Portfolio Performance Predictors Low-volatility stocks outperformed MSCI Developed Markets based on Sharpe ratios (Jan 1975–Mar 2014; capitalization-weighted quarterly rebalance; country sector approach), with portfolio volatility and GDP growth showing mild predictive power.
- Harvesting Volatility Generated by Naive Investors Dumb volatility capture strategies generated multi-factor alphas ranging as high as 4% annually, with EW Russell 1000 and Shiller Barclays CAPE leading performance (Dec 2004–Jun 2014; 10 strategies tested).
- Unexpected Market Volatility as a Market Return Predictor Unexpected volatility strategies outperformed passive benchmarks (0.54 vs 0.36 Sharpe ratio; 1970-2012; monthly hold index when prior-month actual minus average unexpected volatility is negative; S&P 500).
- Diversifying and Pair Trading with Volatility Futures VIX and VSTOXX futures improved gross Sharpe ratios when added to stock-bond portfolios, while a regression-based pair trading strategy generated large gross profits over 6 months (Mar 2004–Feb 2012; weekly…
- Sorting Out the Idiosyncratic Volatility Anomaly A hedge portfolio long low-volatility stocks, short high-volatility stocks generated 0.96% monthly returns pre-2001 but -0.14% during 2001-2008 (1963-2008; value-weighted quintiles; gross returns).
- Volatility Trading Strategies Cooper examines five volatility ETN strategies, finding Buy-and-Hold XIV generated 31.4% annualized returns with high volatility and large drawdowns (2004–Feb 2013; simulated pre-inception data; ignores frictions).
- Lifecycle Funds Guard Against Upside Volatility? Lifecycle funds underperformed mirror image strategies (higher stock allocation early, lower late) and constant allocation strategies across 71 overlapping 40-year periods (1900-2009; annual $1K contributions; 19 countries plus World/Europe data).
- Asset Allocation Combining Momentum, Volatility, Correlation and Crash Protection FAA strategy combining momentum, volatility and correlation rankings outperformed equal-weighted benchmark (14.7% vs 5.6% annualized return; Jan 2005-Dec 2012; top 3 of 7 asset class funds monthly).
- Testing Volatility-Based Allocation with ETFs VBA underperformed equally weighted ETFs (0.20 vs 0.21 monthly Sharpe ratio; Apr 2003–Aug 2012; VIX 10/30-day SMA + asset class 2/12-month SMA timing; SPY/EFA/EEM/RWR/TLT portfolio with 0.1% switching friction).
- Volatility-based Equity Market Allocations Minimum Variance with Portfolio Volatility Target outperformed equal-weighted low-P/E10 country indexes (1.09 vs 0.44 gross Sharpe ratio; Apr 1999–Aug 2012; monthly rebalancing; 32 countries).
- Low-volatility Stock Performance by International Group Low-volatility stocks outperformed high-volatility stocks across Emerging Asia, Emerging EMEA, Latin America, and Ex-U.S./Canada Developed markets (1990-2009; monthly quintile ranking by 500-day moving variance; gross returns).
- Predicting Stock Market Returns and Volatility Vol timing outperformed 60% stocks/40% T-bills (10.1% vs 7.9% average annual return; Jan 1986–Dec 2011; inverse VIX scaling; gross returns), while only 2 of 14 return predictors show statistically significant…
- Pervasive Outperformance of Low-volatility Stocks Low-volatility stocks outperformed high-volatility stocks across all 33 markets (1990-2011; decile portfolios based on 24-month rolling volatility, monthly rebalancing; gross returns before trading costs).
- When Stock Idiosyncratic Volatility Works High idiosyncratic volatility stocks underperformed in non-January months but outperformed in January, with effects concentrated in common stocks excluding microcaps and sub-$5 stocks (1963–2010; monthly decile sorts).
- Enhancing Financial Markets Volatility Prediction Christiansen et al. find credit risk and liquidity variables predict asset class volatilities in-sample, but out-of-sample improvements over simple volatility persistence are inconsistent across asset classes (1926-2010 stocks; 1983-2010 four…
- Predicting Stock Market Returns with Implied Index Volatilities The S&P 500 implied volatility spread (OTM puts minus ATM calls) correlates negatively with next-day index returns, with 1% spread increase indicating 0.02%-0.10% return decrease (1996-2008; descriptive; not a trading…
- Combining Realized Volatility and Simple Moving Averages 10-day SMA timing generated gross abnormal returns of 8.4%-18.7% across volatility deciles, with highest alphas for most volatile stocks (1964-2009; daily rebalancing on index signals; U.S. stock deciles).
- Trading Options on Volatility of Fundamentals Options straddles based on fundamental volatility (accounting data variability) generated 8.0% monthly gross returns but -9.3% net after bid-ask spreads (Jan 1996–Sep 2010; 52,251 firm-quarters).
- Exploiting Idiosyncratic Volatility in Commodity Futures Low idiosyncratic volatility commodity futures outperformed high volatility counterparts (4.6% vs 0% alpha; Sep 1992–Mar 2011; long-short quintile portfolios, 27 futures, rolling methodology).
- Stock Market Volatility by Bull-Bear Regime Volatility more consistently aligns with SMA-based regime classification than returns; 58% of extreme up/down days (>2σ) occur during bear regimes despite bears comprising only 31.7% of time (Jan 1954–Jul 2011;…
- Extracting a Volatility Premium with Equity Options? Delta-hedged options on high-volatility stocks generate extremely negative returns, enabling a strategy buying low-volatility/selling high-volatility options to earn ~2% monthly (Jan 1996–Oct 2009; ~200K observations; profits disappear with realistic trading…
- Interactions of Momentum, Valuation and Idiosyncratic Volatility Stock momentum is strongest for growth firms with high idiosyncratic volatility (1.17% vs 0.43% monthly return; 6-month formation/hold, long-short; 1965-2008 U.S. stocks) but reverses severely over years 2-5.
- Diversifying with Equity Volatility Exposure? A three-asset portfolio (26% S&P 500, 29% scaled long VIX futures, 44% short variance swaps) outperformed 100% S&P 500 (11.6% vs 0.84% annualized return; Feb 1990–Aug 2008; out-of-sample 2nd subperiod).
- Institutional Ownership, Idiosyncratic Volatility and Stock Returns Stocks with low institutional ownership breadth outperform high-breadth stocks (4.1%, 2.0%, 2.5% size-adjusted returns in years 1-3; long-short portfolio, annual rebalancing; 35,526 firm-years, 1986-2008).
- Feasibility of Diversifying Equities with Volatility Futures VIX futures diversification of SPY underperformed due to negative volatility risk premium, with longest-maturity strategy showing least negative returns (Mar 2004–Dec 2010; rolling positions).
- Volatility and Valuation with High-frequency Trading Zhang finds high-frequency trading relates positively to stock price volatility and causes overreaction to fundamental news that subsequently reverses (1985-2009; U.S. stocks; regression analysis).
- Hedging Crashes: Volatility Futures vs. Index Puts 3-month rolling VIX futures outperformed 1-month puts and VT futures as crash hedges for SPY positions (2004-2009; marked-to-market comparison with 10% OTM puts and variance futures).
- Accrual Volatility as a Stock Return Predictor Long-short accrual volatility portfolios generated 10% annualized risk-adjusted returns (lowest vs highest deciles; 1976-2008; monthly rebalancing; accrual volatility = 16-quarter standard deviation of accruals-to-sales ratio).
- Volatility Concentrations Are Bearish? Volatility clusters (≥20 days with 1%+ moves in 40-day windows) do not reliably predict poor S&P 500 returns across 5-252 day horizons (Jan 1950–May 2010; 4-28 tradable signals per threshold;…
- Exploiting the Predictability of Volatility Dynamic leverage strategies timed to volatility predictions outperformed the S&P 500 (CVS: 10.1%, OVS: 12.1% vs 7.0% annual gross returns; 1950-2009; daily rebalancing based on next-day volatility forecasts).
- Does Volatility Selectively Filter Good and Bad Days? S&P 500 volatility shows no predictive power for next-day returns, with R-squared of 0.000 and similar positive/negative day ratios across high (52%/47%) and low (57%/42%) volatility periods (Jan 1950–Apr 2010;…
- How the 52-Week High and Low Affect Beta and Volatility Stock volatility decreases ~32% when approaching 52-week highs, then increases ~46% post-breach; beta drops ~0.18 near highs (broad U.S. stocks; 1963-2008 prices, 1996-2008 options).
- Long-run Versus Short-run Idiosyncratic Volatility ...evidence indicates that stock return predictions based on past volatility are sensitive to the interval of measurement. Measurement over long intervals supports the conventional reward-for-risk belief, while measurement at short…
- VT26 Volatility Breakout Strategy VT26 volatility breakout strategy generated $63 average gross profit per trade but showed inconsistent performance across markets and weakening profitability over time (Apr 2008–Mar 2010; 2,279 trades; ten futures markets).
- Amplifying Momentum Returns with Idiosyncratic Volatility Momentum profits were highest among U.S. stocks in the top third by idiosyncratic volatility, and the gap between stocks with and without positive feedback trading nearly vanishes after controlling for…
- ETF Pair Trading Based on Relative Returns/Volatilities ETF pairs trading (SPY vs XLF/QQQ/OIH) outperformed buy-and-hold benchmarks in 8 of 9 combinations based on terminal wealth and Sharpe ratios (2003-2008; weekly rotation using 104-week rolling forecasts).
- A Market Volatility Factor Model Li argues a three-factor model splits market volatility into diffusion (-0.73% impact) and jump (-0.22% impact) components, with diffusion volatility showing stronger statistical significance (Jan 1997–Sep 2008; S&P 500 options/VIX…
- Volatility and Valuation Ratios David and Veronesi find V-shaped relationships between valuation ratios and volatility, with stock P/E and volatility correlating negatively on average but positively during rare growth periods (1958–2008; theoretical model).
- Combine Momentum with Low Volatility? Mal Williams tested volatility-adjusted momentum (6-month return divided by standard deviation) in asset class rotation and found significantly lower returns without commensurately lower volatility versus standard momentum.
- Long-run Stock Market Volatility Based on Reasonable Expectations Pastor and Stambaugh argue uncertainty components overwhelm mean reversion, linking 30-year annualized variance to 1.5x the 1-year variance (1802-2007; theoretical model with parameter uncertainty).
- The Implied-Realized Volatility Gap as Return Predictor The implied-realized volatility gap for S&P 500 positively predicts equity and bond returns over 1-3 month horizons with explanatory power of a few percent (1990-2008; statistical significance assumes normality).
- Correlation Variability as Driver of the Volatility Risk Premium Index options carry a significant volatility risk premium (24.7% vs 20.8% implied vs realized), while individual stock options do not, suggesting correlation shock hedging value (S&P 100; 1996-2003).
- The Why of the Volatility Risk Premium Eraker's model shows S&P 500 index options imply 19% volatility versus observed 15.7%, with volatility jumps driving consistent overpricing of out-of-the-money puts (1990-2007; theoretical model with empirical calibration).
- Volatility Premium and the Four Factors Volatility risk premium varies systematically with equity factors, with implied volatility overestimating realized volatility for small-cap, high book-to-market, and non-momentum stocks (Jan 1996–Apr 2006; 91-day ATM calls).
- The Volatility Risk Premium and De-biased Equity Option Returns Duarte and Jones find a volatility risk premium that increases with market volatility, with bias-adjusted S&P 500 option returns showing out-of-the-money calls have negative mean returns (1996-2005; daily data with…
- Misunderestimating Volatility? Only 3 of 87 finance professionals and students correctly gave the standard deviation of a normal distribution from its mean absolute deviation; the typical answer was 25% too low, with…
- Sources of Volatility’s Predictive Power for Stock Returns Long-short portfolios sorted on call-put implied volatility difference earned 1.1% to 1.4% monthly raw and risk-adjusted returns, versus 0.5% to 0.9% for realized-implied volatility difference sorts (top/bottom 20% of stocks;…
- (Low) Volatility as an Indicator of Persistent Hedge Fund Outperformance Low-volatility hedge funds outperformed consistently across market cycles, with risk-adjusted measures like Sharpe ratio predicting persistence better than raw returns (3,060 funds; 1994-2002; volatility-based selection).
- Effects of Inflation Rate Trend and Volatility on Stock Returns CPI inflation trend and volatility show no meaningful relationship with S&P 500 returns (correlations 0.09 and 0.05 respectively; Jan 1990–Jun 2007; monthly data with 4-month lookbacks).
- Making Money with Options Based on Superior Volatility Forecasts Long-short straddles strategy targeting implied volatility mean reversion generated 15.0% monthly returns (Jan 1996–May 2005; long/short ATM straddles based on expected IV changes; all US equity options).
- Why Highly Volatile Stocks Tend to Underperform Stocks with high idiosyncratic volatility underperformed in the U.S. and internationally, with this volatility premium closely related to the value premium (1926–2005 U.S.; 1973–2003 international; portfolio sorts).
- Predicting Stock Returns Not with Volatility, But Volatilities Overall market volatility and average idiosyncratic volatility together forecast U.S. stock market returns, while neither does reliably alone (quarterly data, 1927–2005; holds in subsamples; descriptive predictive regressions, not a trading…