Article,
The lead–lag relation between VIX futures and SPX futures
Contributors
Bangsgaard, Christine
0000-0003-0873-4191
[1]
Kokholm, Thomas Sander
0000-0002-1402-4295
(Corresponding author)
[1]
[2]
Affiliations
- [1] Aarhus University [NORA names: AU Aarhus University; University; Denmark; Europe, EU; Nordic; OECD];
- [2] Danish Finance Institute, Denmark [NORA names: Miscellaneous; Denmark; Europe, EU; Nordic; OECD]
Abstract
We analyze the lead–lag relation between VIX futures and SPX futures. The two futures markets are weakly connected when market volatility is low. By contrast, when volatility is high, their prices are highly negatively correlated, with VIX futures leading SPX futures. However, the tightness of the lead–lag relation prevents the formation of profitable trading strategies in a setup that includes transaction costs. An analysis of the time variation in the lead–lag relation finds that an improvement in the relative liquidity of one market strengthens the lead of that market. Moreover, the hedging activities of market makers influence the lead–lag relation.
Keywords
SPX,
VIX,
VIX futures,
activity,
analysis,
cost,
formation,
future,
futures market,
improvement,
lead-lag relations,
liquid,
makers,
market,
market makers,
market volatility,
price,
relations,
setup,
strategies,
tightness,
time,
time variation,
trade,
trading strategies,
transaction costs,
transactions,
variation,
volatility
