Suspicious VIX

Sammanfattning: The aim of this essay is to study if the Chicago Board of Options Exchange’s volatility index VIX can be used as an indicator on the stock market, and if an investor can make a profit on portfolios by using a volatility strategy based on VIX. The study is based on nine volatility strategies that are tested on four different portfolios containing stocks from Mega Cap, Large Cap, Mid Cap and Small Cap. The strategies are also tested under different economic situations: before, during and after the big bank crisis in 2008. The theoretical frame of the study is founded of regression analysis, the efficient market hypothesis and behavioural finance. The two latter are the core base for the analysis. The study shows that the strategies work best under periods, where the market is very volatile, like under the big bank crisis. The results also show that VIX is a good market indicator and can be used to make a profit mainly on Small Cap portfolios and that the strategies are better as short-term strategies than long-term.