|
Title: Expected and Realized Returns on Volatility Prof. Kris Jacobs (University of Houston) Abstract: Expected returns on market volatility, which can be obtained from VIX futures in closed form using standard models, predict subsequent multiperiod realized volatility returns. Multiperiod realized volatility returns are more negative following increases in volatility. Expected volatility returns are always negative. They also become more negative when volatility increases because of di erences in mean reversion between the VIX and the risk-neutral VIX. Expected volatility returns negatively predict index returns, because realized volatility returns are negatively correlated with index returns. The results are robust to a wide range of variations in the empirical setup and the inclusion of existing predictors.
|
