On the Intraday Relation Between the VIX and its Futures

Abstract

We study the intraday dynamics of the VIX and VXF for the period January 2, 2008 to December 31, 2012. Applying a Vector Autoregression (VAR) model on daily data, we observe some evidence of causality from the VXF to the VIX. However, estimating a VAR using our ultra-high frequency data, we find strong evidence for bi-directional Granger causality between the VIX and the VXF. Overall, this effect appears to be stronger from the VXF to the VIX than the other way around. Impulse response functions and variance decompositions analysis further confirm the dominance of the VXF. Lastly, we show that the causality from the VXF to the VIX has been increasing over our sample period, whereas the reverse causality has been decreasing. This finding suggests that the VIX futures have become increasingly more important in the pricing of volatility. We further document that the VIX futures dominate the VIX more on days with negative returns, and on days with high values of the VIX, suggesting that on those days investors use VIX futures to hedge their positions rather than trading in the S&P 500 index options.

Determinants of intraday price discovery in VIX exchange traded notes

“…Shu and Zhang () examine the lead‐lag dynamics between the VIX and VIX futures on a daily basis and conclude that VIX futures lead the VIX. Frijns, Tourani‐Rad, and Webb (), using intraday data, find evidence of bi‐directional causality between the VIX and its futures, with VIX futures prices becoming more informative over the time. As for volatility ETPs, Bordonado, Molnár, and Samdal () study the price discovery relation among direct, leveraged and inverse VIX ETPs employing 1‐min data and identify the price discovery leader within each ETP category .…”

Pricing the CBOE VIX Futures with the Heston–Nandi GARCH Model

“…By adding jumps to the classical Heston model, Zhu and Lian () found an analytical pricing formula for VIX futures . Using intraday data, Frijns, Tourani‐Rad, and Webb () found strong evidence for bi‐directional Granger causality between the VIX and the VIX futures.…”

Derivatives pricing when supply and demand matter: Evidence from the term structure of VIX futures

“…However, if the VIX and the VIX futures prices are codetermined, inclusion of the VIX as an independent variable will lead to simultaneity bias. The findings in Frijns et al () suggest that this problem might be severe for transaction‐level data, but not for daily data: The future dominates price discovery, but shocks are reflected in both the VIX and futures within a minute.…”