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The Return-Implied Volatility Relation for Commodity ETFs


  • Chaiyuth Padungsaksawasdi,

    1. Chaiyuth Padungsaksawasdi is a Lecturer in Finance at the Department of Finance, Thammasat Business School, Thammasat University, Bangkok, Thailand
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  • Robert T. Daigler

    Corresponding author
    1. Robert T. Daigler is Knight Ridder Research Professor of Finance at The Chapman Graduate School of Business, Florida International University, Miami Florida
    • Correspondence author, The Chapman Graduate School of Business, Florida International University, Miami, Florida 33199. Tel: 305-348-3325, Fax: 305-348-4245, e-mail:

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  • We thank Samuel Kadziela and Shelly Natenberg, Chicago Trading Company, participants of the 2011 Midwest Finance Meeting, the reviewer and Bob Webb (the editor), and participants at the Thammasat Business School finance research workshop for useful discussions and comments. We are especially grateful to Shelly Natenberg's insights on implied volatility skews. An earlier version of this study was circulated under the title of “Market Integration, Commodity VIXs, and the Return-Volatility Relation.” Chaiyuth Padungsaksawasdi was financially supported by the FIU Graduate School Dissertation Year Fellowship.


We examine the return-implied volatility relation by employing “commodity” option VIXs for the euro, gold, and oil. This relation is substantially weaker than for stock indexes. We propose several potential reasons for these unusually weak results. Also, gold possesses an unusual positive contemporaneous return coefficient, which is consistent with a demand volatility skew rather than the typical investment skew. Moreover, the euro and gold are not asymmetric. We relate the results to trading strategies, algorithmic trading, and behavioral theories. An important conclusion of the study is that important differences exist regarding implied volatility for certain types of assets that have not yet been explained in the literature; namely, the results in this study concerning commodity ETFs versus stock indexes, plus previous research on stock indexes versus individual stocks, and the pricing of stock index options versus individual stock options. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:261–281, 2014