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Causality in the VIX futures market

โœ Scribed by Jinghong Shu; Jin E. Zhang

Publisher
John Wiley and Sons
Year
2011
Tongue
English
Weight
327 KB
Volume
32
Category
Article
ISSN
0270-7314

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โœฆ Synopsis

Abstract

This study examines the priceโ€discovery function and information efficiency of a fast growing volatility futures market: the Chicago Board of Option Exchange VIX futures market. A linear Engleโ€“Granger cointegration test with an error correction mechanism (ECM) shows that during the full sample period, VIX futures prices lead spot VIX index, which implies that the VIX futures market has some priceโ€discovery function. But a modified Baek and Brock nonlinear Granger test detects biโ€directional causality between VIX and VIX futures prices, suggesting that both spot and futures prices react simultaneously to new information. Quarterโ€byโ€quarter investigations show that, on average, the estimated parameters are not significantly different from zero, thus providing further evidence supporting information efficiency in the VIX futures market. ยฉ 2011 Wiley Periodicals, Inc. Jrl Fut Mark

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