Presenter: Christine Dieckmann Bangsgaard, AU

Title: The Stock Market Impact of Volatility Hedging: Evidence from End-of-Day Trading by VIX ETPs

Abstract: VIX futures market makers can hedge their volatility exposure by trading SPX options and SPX futures. We compute the end-of-day VIX futures demand by VIX ETPs, and find that the demand impacts the SPX futures market in the direction consistent with the VIX futures hedging channel. The VIX ETP demand is a strong predictor of the end-of-day SPX futures return both in-sample and out-of-sample, and historically it has been possible to monetize the hedging impact. We find some evidence of a subsequent return reversal, suggesting that the VIX futures hedging channel can move the SPX futures market for reasons unrelated to price discovery.

Organizers: Stefan Hirth and Anders Merrild Posselt