I have written before about VSXX - an ETF that tracks pan-european VSTOXX volatility index, European equivalent of VXX. In that post I described how VSXX performance may be different, because of the flatter term structure of VSTOXX volatility futures, that will translate into lower rolling costs, and better performance for VSXX investors, at least compared with VXX. I also noted that traders may take advantage of this difference in a relative value trade. When I wrote the post, VSXX was trading for only two months, however now after seven month of trading it is becoming clear that my investment hypothesis not deliver, and VSTOXX futures markets became more economically efficient.
Here's the chart of what happened: VSXX originally listed at around the same Euro value as the index, however in the last few weeks VSXX is about 70% of VSTOXX index.
If you looked at the relative plots of VIX and VSTOXX with their futures indexes (on which ETFs are based) it is clear that historically VSTOXX futures index did much better job in tracking index levels than the VIX futures index. To understand the dynamics, I have performed the following two regressions:
return on SPVIXSTR ~