KBS paper makes SSRN TOP 10 DOWNLOADS list within days

A recent research paper co-authored by Dr Silvia Stanescu and Prof Radu Tunaru, entitled ‘Investment Strategies with VIX and VSTOXX Futures’ has ranked among the TOP 10 most downloaded papers in its category within days of it being uploaded onto the Social Science Research Network (SSRN).

The paper discusses one of the hottest topics in financial markets at the moment, namely volatility derivatives, which have experienced an exponential growth in the aftermath of the subprime crisis. In the first part of the paper, the authors have analysed the performance of various portfolios mixing equity with bonds but also considering volatility futures. The analysis was carried out comparatively for US using VIX futures and also for Euro zone where VSTOXX futures were employed. The results point out that the best portfolio will contain a large proportion of equity, a smaller proportion of bonds and also of volatility index futures. The key finding here is that bonds will help investors in periods of liquidity pressure while volatility futures will help to insulate the portfolio against temporary market crashes and systemic shock events. In the second part of the paper the authors identify a statistical arbitrage opportunity between the VIX futures and VSTOXX futures markets. For the first time in the literature they analyse the synchronous daily time-series of the differences between the VIX futures and VSTOXX futures. This is a unique dataset that was compiled with the great help from Eurex Deutsche Borse. The in-sample results show that the difference VIX-VSTOXX (futures) is significantly negative, in effect that there was more volatility in the Euro zone than in US. This relationship may change in the future but the statistical methodology presented in the paper along with the proposed trading strategies can be applied the same way.

For more details, the paper is available from the following link:

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