The Efficiency of VIX Futures Market – A Panel Data Approach

Abstract

This study examines whether VIX futures prices are unbiased and efficient predictors of the VIX index. The particular empirical analysis differs from the usually applied tests in that it uses a panel estimation approach. Panel regression has several advantages as it offers more flexibility in modelling the efficiency of several futures contract with overlapping dataset. As a result, this methodology enables us to include all daily closing prices of VIX futures contracts that expired between May 2004 and December 2009, a total of 64 contracts.

The empirical findings support the hypothesis that VIX futures are good predictors of spot VIX values. The tests show that the VIX futures with a forecast horizon up to 23 days do not incorporate a significant risk premium and thus, can be considered as unbiased and efficient estimators of the relevant spot VIX levels.

Keywords: VIX futures, market efficiency, panel data

JEL Classification: G10, G13, G14, C23