Manipulation in the VIX?

58 Pages Posted: 24 May 2017

John M. Griffin

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University of Texas at Austin - Department of Finance

Amin Shams

Ohio State University, Fisher College of Business

Date Written: May 23, 2017

Abstract

At the settlement time of the VIX Volatility Index, volume spikes on S&P 500 Index (SPX) options, but only in out-of-the-money options that are used to calculate the VIX, and more so for options with a higher and discontinuous influence on VIX. We investigate alternative explanations of hedging and coordinated liquidity trading. Tests including those utilizing differences in put and call options, open interest around the settlement, and a similar volatility contract with an entirely different settlement procedure in Europe are inconsistent with these explanations but consistent with market manipulation. Large transient deviations in prices demonstrate the importance of settlement design.

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