The daily rise and fall of the VIX1D: causes and solutions of its overnight bias

Publikation: Beitrag in FachzeitschriftForschungsartikelBeigetragenBegutachtung

Beitragende

Abstract

This paper explores the unique intraday dynamics of the VIX1D. We identify a distinct overnight bias, that causes the index to consistently rise during trading hours and to fall overnight. This bias stems from the index’s calculation methodology, particularly the use of business time and dynamic weighting of next-term options which include overnight variance risk premiums. It overlaps with and is more pronounced than the day-of-the-week effect. To mitigate this bias, we propose data filtering and revising the calculation method to a forwardlooking index. These solutions aim to enhance the VIX1D’s interpretability and reliability for risk assessment in financial markets.

Details

OriginalspracheEnglisch
Aufsatznummer105186
Seitenumfang10
FachzeitschriftFinance Research Letters
Jahrgang62 (2024)
PublikationsstatusVeröffentlicht - 2 März 2024
Peer-Review-StatusJa

Externe IDs

Scopus 85187163226
Mendeley acc4570a-c2e0-39d9-8bdf-ebdc2a6aaf6c

Schlagworte

Schlagwörter

  • Day-of-the-week effect, Implied volatility, Intraday pattern, Overnight bias, VIX1D

Bibliotheksschlagworte