Abstract
We evaluate the ability of different asset pricing models to explain the flows into VIX ETPs with long volatility exposure. We find no evidence supporting that investors consider systematic risk when they evaluate VIX ETP performance. Instead, investors appear to follow a simple mean reversion strategy, buying (selling) when returns are negative (positive), coinciding with (high) levels of the VIX. We provide evidence that this mean reversion strategy is a very likely explanation for the low premium response puzzle in the VIX premium.
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