Determinants of Volatility: Calling It Quits on the VIX
Tchorbajian, Serena Alexandra
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CitationTchorbajian, Serena Alexandra. 2019. Determinants of Volatility: Calling It Quits on the VIX. Bachelor's thesis, Harvard College.
AbstractThis thesis explores the usage of the Chicago Board Options Exchange’s Volatility Index (VIX) in the current literature as a metric for broad investor sentiment and market volatility. The central premise of this paper is that the VIX has been taken out of context both by academics and practitioners in two distinct ways. Within academia, the VIX is used as a proxy for volatility across all asset classes even though implied and realized volatility in equities and fixed income are different. In practice, VIX-related products have been marketed as portfolio insurance products for a diverse investor base. The rise of leveraged ETFs that are pegged to the VIX futures curve instead of the VIX index lends itself to trading discrepancies given the information asymmetry between investors and the creators of these products. I also find that the introduction of these leveraged ETFs in the market is correlated to changes in the level of the VIX. I conclude that these two distortions of the uses of the VIX warrant a two-pronged response: a reexamination of the findings within the literature that are benchmarked to the VIX and a change in investor education with regards to VIX products.
Citable link to this pagehttps://nrs.harvard.edu/URN-3:HUL.INSTREPOS:37364624
- FAS Theses and Dissertations