Working Paper: NBER ID: w24575
Authors: George O. Aragon; Rajnish Mehra; Sunil Wahal
Abstract: The VIX index is not traded on the spot market. Hence, in contrast to other futures markets, the VIX futures contract and spot index are not linked by a no-arbitrage condition. We examine (a) whether predictability in the VIX index carries over to the futures market, and (b) whether there is independent time series predictability in VIX futures prices. The answer to both questions is no. Samuelson (1965) was right: VIX futures prices properly anticipate predictability in volatility, and are themselves unpredictable.
Keywords: VIX futures; market efficiency; predictability; volatility; Samuelson's theorem
JEL Codes: G1; G12; G13; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Current level of VIX index (C58) | Future changes in VIX futures prices (G13) |
| Prior returns in VIX futures (G13) | Future price changes (G13) |