Summary
This summary examines the validity of Klearman’s argument that 50 % long SPVIXMTR and 50 % long SPVXSPIT results in the best case scenario with much lower volatility and drawdown risk. To construct 10-year trends of SPVIXMTR, SPVIXSTR, SPVXSPIT, SPVXMPIT, and VIX Spread Trade, the 10 years of daily historical stock prices (indicated as PX_Last) and volumes for each index from 2006 to 2017 are extracted from Bloomberg.
As shown in Graph I, SPVIXMTR and SPVIXSTR declined 75.6 % and 99.7% respectively from 2006 to 2017. The PX_Last value of SPVIXMTR has the mean of 75898, median of 46701, and standard deviation of 139.3; the PX_Last value of SPVIXSTR has the mean of 26156.57, median of 1659.14, and standard deviation of 587.3.
Graph II indicates a clear upward trend for both SPVXSPIT and SPVXMPIT. This is a 281.3% increase for SPVSPIT and a 54.7 percent increase for SPVXMPIT. The PX_Last value of SPVXSPIT has the mean of 273163, median of 131184, and standard deviation of 332,158.0; the PX_Last value of SPVXMPIT has the mean of 228027, median of 223822, and standard deviation of 76,027.2.
Graph III shows that the return of the VIX Spread Trade had doubled the return of SP500TR with much lower volatility and drawdown risk than SPVXSPIT from 2006 to 2016. The PX_last values of SPVIXMTR and SPVXSPIT are added and divided by 2 to compute the PX_last values of the VIX Spread Trade. The PX_last values of the VIX Spread trade has the mean of 171292, median of 146074, and standard deviation of 62,460.0. To draw substantive conclusions based on the graphs above, Klearman’s investment strategy of 50% long SPVIXMTR and 50% long SPVXPIT is reasonable as the stock prices of SPVIXMTR declines 24.1 % less than that of SPVIXSTR and the stock prices of SPVXSPIT increases 226.6 % more than that of SPVIXMTR over the course of 10 years.
Results
Table I: S&P500 INDEX Summary Statistics
|
|
|
Statistic
|
N
|
Mean
|
St. Dev.
|
Min
|
Pctl(25)
|
Pctl(75)
|
Max
|
|
|
|
PX_LAST
|
3,818
|
1,875
|
723
|
677
|
1,304
|
2,396
|
3,935
|
|
PX_VOLUME
|
3,818
|
824,403,506
|
391,075,303
|
170,793,796
|
534,865,962.0
|
1,067,335,970.0
|
2,777,787,139
|
|
|
Table II: SP500TR Summary Statistics
|
|
|
Statistic
|
N
|
Mean
|
St. Dev.
|
Min
|
Pctl(25)
|
Pctl(75)
|
Max
|
|
|
|
PX_LAST
|
1,542
|
5,148.3
|
1,140.6
|
3,429.0
|
4,060.0
|
5,853.6
|
8,142.8
|
|
PX_VOLUME
|
1,542
|
617,753,972.0
|
211,987,778.0
|
170,793,796
|
508,062,002.0
|
658,189,778.0
|
2,284,643,404
|
|
|
Table III: SPVIXMTRSummary Statistics
|
|
|
Statistic
|
N
|
Mean
|
St. Dev.
|
Min
|
Pctl(25)
|
Pctl(75)
|
Max
|
|
|
|
PX_LAST
|
3,819
|
75,897.5
|
66,139.3
|
10,096.1
|
20,836.1
|
124,370.7
|
271,938.3
|
|
|
Table IV:SPVIXSTRSummary Statistics
|
|
|
Statistic
|
N
|
Mean
|
St. Dev.
|
Min
|
Pctl(25)
|
Pctl(75)
|
Max
|
|
|
|
PX_LAST
|
3,819
|
26,156.6
|
41,587.3
|
22.9
|
96.0
|
46,092.7
|
231,276.8
|
|
|
Table V:SPVXMPITSummary Statistics
|
|
|
Statistic
|
N
|
Mean
|
St. Dev.
|
Min
|
Pctl(25)
|
Pctl(75)
|
Max
|
|
|
|
PX_LAST
|
1,542
|
227,677.6
|
75,984.7
|
109,506.1
|
161,446.0
|
300,062.5
|
387,729.1
|
|
|
Table VI:SPVXSPITSummary Statistics
|
|
|
Statistic
|
N
|
Mean
|
St. Dev.
|
Min
|
Pctl(25)
|
Pctl(75)
|
Max
|
|
|
|
PX_LAST
|
3,818
|
273,162.6
|
332,158.0
|
17,568.4
|
81,730.6
|
370,819.0
|
2,032,158.0
|
|
|
Table VII: VIXSummary Statistics
|
|
|
Statistic
|
N
|
Mean
|
St. Dev.
|
Min
|
Pctl(25)
|
Pctl(75)
|
Max
|
|
|
|
PX_LAST
|
3,818
|
19.6
|
9.6
|
9.1
|
13.3
|
22.7
|
82.7
|
|
|
References
