Why VXX Does Not Track the Spot VIX Index

Summary

The document addresses why VXX, an exchange-traded volatility product, can diverge persistently from the VIX index. Its central explanation is that VXX is not designed to track spot VIX directly. That distinction is the key to interpreting the apparent mismatch: comparing the two as if they were equivalent measures or exposures leads to the wrong expectation of their performance.

The document offers no detailed construction method, data analysis, or evidence beyond pointing to an external explanation of volatility exchange-traded products. It therefore introduces a useful conceptual caveat but does not explain the product’s mechanics or quantify how those mechanics affect returns. Readers should treat it as a starting point for understanding tracking differences rather than a complete account of VXX pricing or performance.

Key ideas

• VXX is not designed to track the spot VIX index directly.
• A persistent difference between VXX and VIX is not, by itself, evidence that VXX is malfunctioning.
• The document points to an external explanation but does not describe the tracking mechanism in detail.

Tags

# Why systematic divergence between ^VIX and VXX?


# Why systematic divergence between ^VIX and VXX?












Why is there systematic negative divergence between the VIX index and the VXX ETF meant to track it?

http://finance.yahoo.com/q/bc?s=%5EVIX&t=5y&l=on&z=l&q=l&c=vxx

## Answer by jaredwoodard (score 5, accepted)

https://quant.stackexchange.com/a/10812

Because VXX is not designed to track the spot VIX. http://blogs.cfainstitute.org/insideinvesting/2014/02/12/doing-what-it-says-on-the-tin-the-value-of-volatility-etps/

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.