Equity volatility indexes give investors diversification but lack liquidity and choice

Diversification is popular with investors

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A recent survey conducted by Edhec-Risk Institute1 looked in part at the question of equity volatility indexes. These indexes are naturally less widely used than stock or bond indexes. Nearly 90% of respondents to the survey invest in equity and around 70% invest in bonds, while only one fifth have allocation in equity volatility.

This can be explained by the fact they are relatively new, first introduced in 1993 (Whaley 1993). However, there may also be other reasons that make investors hesitate

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