The Information Content of the S&P 500 Index and VIX Options on the Dynamics of the S&P 500 Index

Journal of Futures Markets

45 Pages Posted: 20 Nov 2010 Last revised: 1 Oct 2013

Chung San-Lin

National Taiwan University

Wei-Che Tsai

National Sun Yat-sen University - Department of Finance

Yaw-Huei Wang

National Taiwan University

Pei-Shih (Pace) Weng

National Dong Hwa University - Department of Finance

Date Written: November 18, 2010

Abstract

Given that both S&P 500 index and VIX options essentially contain information on the future dynamics of the S&P 500 index, in this study, we set out to empirically investigate the informational roles played by these two option markets with regard to the prediction of returns, volatility and density in the S&P 500 index. Our results reveal that the information content implied from these two option markets is not identical. In addition to the information extracted from the S&P 500 index options, all of the predictions for the S&P 500 index are significantly improved by the information recovered from the VIX options. Our findings are robust to various measures of realized volatility and methods of density evaluation.

Keywords: VIX options, Index options, Put-call parity, Implied volatility, Implied density.

JEL Classification: C53, G13

Suggested Citation

San-Lin, Chung and Tsai, Wei-Che and Wang, Yaw-Huei and Weng, Pei-Shih (Pace), The Information Content of the S&P 500 Index and VIX Options on the Dynamics of the S&P 500 Index (November 18, 2010). Journal of Futures Markets. Available at SSRN: https://ssrn.com/abstract=1711036 or http://dx.doi.org/10.2139/ssrn.1711036

Chung San-Lin

National Taiwan University ( email )

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

Wei-Che Tsai

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

Yaw-Huei Wang (Contact Author)

National Taiwan University ( email )

Department and Graduate Institute of Finance
College of Management
Taipei, 106
Taiwan
+886233661092 (Phone)
+886283695581 (Fax)

Pei-Shih Weng

National Dong Hwa University - Department of Finance ( email )

Taiwan

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