The Informational Association between the S&P 500 Index and VIX Options Markets

Abstract

We set out in this study to investigate the informational association between the S&P 500 index and VIX options markets by examining the relationship between trading activity in VIX options and changes in the VIX in a high-frequency framework. As opposed to any lead-lag relationship, our results reveal a consistent and significant contemporaneous relationship. Our empirical findings are strengthened when we examine the crisis period encompassing the collapse of Lehman Brothers and when the variables are compiled only from out-of-the-money options. When taking into consideration the impacts of liquidity in the VIX options market and the periodical patterns of the intraday time series, the conclusions drawn from our empirical analysis remain unchanged.

Keywords: S&P 500, Options, VIX, Trading activity

JEL Classification: C53, G13