Study 10: Divergences Between Implied Volatility & Underlying Returns
Can we learn about the future by comparing changes in VIX and SPY?
Some traders compare the recent return in SPY with the change in its option market’s expectations of future volatility (the VIX index).
This study tests this variable in depth, comparing it with future variables of interest like returns, risk-adjusted returns (per-drawdown), future volatility (GKYZ style), and changes in future volatility.
The Theory
H…