The Price Impact of VIX ETPs’ Rolling

This paper explains why various VIX Exchange Traded Products (ETPs) with long positions of VIX futures have lost a significant amount since their introduction starting in 2009. Empirical evidence is provided to support the hypothesis that price impact due to mechanical rolling activity of VIX ETPs contributes to the catastrophic loss. It is estimated that short-term un-levered VIX ETPs with direct positions lost 1.3-2.8% of total asset value per month on average as transaction cost. Front running strategies taking advantage of the price impact are shown to be profitable right after the launch of VIX ETPs but deteriorate over time possibly because of arbitrageurs’ more attention recently. Moreover, VIX futures deliver abnormal daily returns when there is a big change of trade flow by VIX ETPs.