Behind the Rejection of Alternative Measures of Implied Equity Volatility: A Note ()
Abstract
This note evaluates the risk-adjusted
performance of the implied volatility of the NASDAQ index (VXN), Russell 2000
(RVX) and Dow Jones Industrial Averages (VXD). The results are compared to the
performance of the implied
volatility of the S & P 500 (VIX) in order to identify the unique
contribution of each volatility index. Futures and option contracts have been
offered on the VXD, VXN and RVX with results so dismal that the contracts were
eventually delisted. In May 2012 futures were once again offered on the VXN but
there is little market interest as indicated by the low trading volume. This
note finds that the equity index implied volatility measures on VXN, RVX and
VXD do not offer sufficient benefits beyond what investors can achieve with VIX
which may explain, in part, the rejection of derivatives written on those
measures of tradable implied index volatility.
Share and Cite:
Hancock, G. (2013). Behind the Rejection of Alternative Measures of Implied Equity Volatility: A Note.
Journal of Financial Risk Management, 2, 10-12. doi:
10.4236/jfrm.2013.21002.
Conflicts of Interest
The authors declare no conflicts of interest.
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