Monday 20 April 2020 2:59pm
Recent Publication in the Journal of Financial Markets (ABDC-A*). Dr Xinfeng Ruan and Professor Jin E. Zhang have had accepted for Publication the article ‘The Economics of the Financial Market for Volatility Trading’ in the Journal of Financial Markets.
Abstract
We examine the economics of the financial market for volatility trading based on an equilibrium model with three kinds of traders: dealers, asset managers, and leveraged funds. Our model reveals that the negative price of volatility is due to the high short positions of dealers, low short positions of leveraged funds, and high long positions of asset managers. It also explains well the negative variance risk premium and the negative returns of volatility derivatives. Our empirical analysis based on VIX futures position data with weekly frequency from 2006 to 2016, furthermore, supports the model's implications.