The Risks of Volatility ETNs: A Recent Incident and Underlying Issues

Getting volatility exposure has become easier for investors after the relatively recent introduction of volatility ETNs (exchange-traded notes) and volatility ETFs (exchange-traded funds) and some of these products have enjoyed a surge in popularity. This paper uses the recent crisis with TVIX – a volatility ETN – to underline important differe...
Author(s)
Felix Goltz, Stoyan Stoyanov

Getting volatility exposure has become easier for investors after the relatively recent introduction of volatility ETNs (exchange-traded notes) and volatility ETFs (exchange-traded funds) and some of these products have enjoyed a surge in popularity. This paper uses the recent crisis with TVIX – a volatility ETN – to underline important differences between ETNs and ETFs which appear to be at the source of the observed market distortion. A revisited version of this paper was published in the Fall 2013 issue of the Journal of Index Investing.

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