Published in the Securities Arbitration 2004 Handbook PLI.

Brokerage firms recently recommended that investors holding a concentrated position in a single stock borrow and invest in a portfolio of additional stocks to reduce risk. Dr. McCann and Dr. Luo demonstrate that this strategy to reduce risk predictably did exactly the opposite.

Published in the PIABA Bar Journal, Vol. 18, No. 24, pp. 235-252.

Exposure to the CBOE Volatility Index (VIX) has been available since 2004 in the form of futures and since 2006 in the form of options, but recently new exchange-traded products have offered retail investors an easier way to gain exposure to this popular measure of market sentiment. The most successful of these products so far has been Barclays’s VXX ETN, which has grown to a market cap of just under $1.5 billion. However, the VXX ETN has lost more than 90% of its value since its introduction in 2009, compared to a decline of only 60% for the VIX index. This poor relative performance is because the VXX ETN tracks an index of VIX futures contracts that can incur negative roll yield. In this paper we review the VIX index and assess the opportunities and risks associated with investing in the VXX ETN.

Monthly returns from the Credit Suisse and UBS time periods – including for subperiods of similar characteristics UBS blames for the 2018 losses – show these two programs were very different and that UBS’s program was much riskier and had much more directionality than the Credit Suisse program. We find market conditions in 2018 when YES lost 18.44% were much less dramatic than in 2008 when Credit Suisse lost only 2.42%