Do Properly Anticipated Prices Fluctuate Randomly? Evidence from VIX Futures Markets
39 Pages Posted: 8 May 2018 Last revised: 24 Dec 2018
Date Written: December 21, 2018
The VIX index is not traded on the spot market. Hence, in contrast to other futures markets, the VIX futures contract and spot index are not linked by a no-arbitrage condition. We examine (a) whether predictability in the VIX index carries over to the futures market, and (b) whether there is independent time series predictability in VIX futures prices. The answer to both questions is no. Samuelson (1965) was right: VIX futures prices properly anticipate predictability in volatility, and are themselves unpredictable.
Keywords: VIX futures, volatility risk premium, mean-reversion, momentum
JEL Classification: G13, G14
Suggested Citation: Suggested Citation