Investing in VIX Futures Based on Rolling GARCH Models Forecasts
Investing in VIX Futures Based on Rolling GARCH Models Forecasts

Author(s): Oleh Bilyk, Paweł Sakowski, Robert Ślepaczuk
Subject(s): Financial Markets
Published by: Wydawnictwa Uniwersytetu Warszawskiego
Keywords: GARCH; VIX index; volatility futures; rolling forecasting; volatility; investment strategies; volatility exposure
Summary/Abstract: The aim of this work is to compare the performance of VIX futures trading strategies built across different GARCH model volatility forecasting techniques. Long and short signals for VIX futures are produced by comparing one-day-ahead volatility forecasts with current historical volatility. Using daily data over a seven-year period (2013–2019), we found that strategies based on the fGARCH-TGARCH and GJR-GARCH specifications outperformed those based on the GARCH and EGARCH models and performed slightly below the 'buy-and-hold' S&P 500 strategy. For the base GARCH(1,1) model, the training window size and the type gave stable results, whereas the performance across refit frequency, conditional distribution of returns, and historical volatility estimators varied significantly. Despite the non-robustness of some investment strategies and some space for improvements, the presented strategies show their potential in competing with the equity and volatility benchmarks.

• Details
• Contents