Early Birds Get the Vol: Morning Volatility Uncertainty and Variance Risk Premium

EI Seminar
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We document that the VVIX (volatility-of-volatility index) exhibits distinct intraday patterns with varying predictive power for variance asset returns. Using high-frequency VIX options data from 2006-2022, we find VVIX's predictive ability peaks at 10:00 EST during U.S.-European market overlap, achieving t-statistics of 5.6 and adjusted-$R^2$s up to 2.63\%. This predictive power systematically diminishes after 11:00 EST.

Speaker
Rodrigo Hizmeri
Date
Thursday 20 Nov 2025, 12:00 - 13:00
Type
Seminar
Room
ET-14
Location
Campus Woudestein
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Elevated morning VVIX predicts positive next-day variance asset returns, consistent with underreaction and slow-moving beliefs about volatility mechanisms. Results remain robust after controlling for established predictors, overnight information, and order imbalances, generating substantial economic value through trading strategies with Sharpe ratios significantly above benchmarks.

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4th International Econometrics PhD Conference 2025

Bringing together PhD candidates from universities around the world specialising in Econometrics to present and discuss their research.
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