Seminar
Early Birds Get the Vol: Morning Volatility Uncertainty and Variance Risk Premium
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SeriesErasmus Econometric Institute Series
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Speaker(s)Rodrigo Hizmeri (University of Liverpool, United Kingdom)
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FieldEconometrics, Data Science and Econometrics
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LocationErasmus University Rotterdam, Campus Woudestein, ET-14
Rotterdam -
Date and time
November 20, 2025
12:00 - 13:00
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. 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.