An Investigation of the Lead-Lag Relationship between the VIX Index and the VIX Futures on the S&P500

Abstract

This study investigates the lead-lag relationship between the price movements of VIX futures and VIX index levels. As a proxy for the futures, the front month VIX futures contract is used. A Johansen cointegration approach with a vector error correction model and Granger causality analysis are applied. The results suggest that VIX futures lead spot VIX index, which implies that VIX futures market seems to play a more important role in price discovery.

Keywords: Lead-Lag Relationship, Causality, Price Discovery, Futures, VIX, Implied Volatility

JEL Classification: C32, G13, G14