Do Properly Anticipated Prices Fluctuate Randomly? Evidence from VIX Futures Markets

40 Pages Posted: 7 May 2018

See all articles by George O. Aragon

George O. Aragon

Arizona State University (ASU) - Finance Department

Rajnish Mehra

Arizona State University (ASU) - W.P Carey School of Business, Department of Economics; National Bureau of Economic Research (NBER)

Sunil Wahal

Arizona State University (ASU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 2018

Abstract

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.

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Suggested Citation

Aragon, George O. and Mehra, Rajnish and Wahal, Sunil, Do Properly Anticipated Prices Fluctuate Randomly? Evidence from VIX Futures Markets (May 2018). NBER Working Paper No. w24575. Available at SSRN: https://ssrn.com/abstract=3174507

George O. Aragon (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Rajnish Mehra

Arizona State University (ASU) - W.P Carey School of Business, Department of Economics ( email )

Tempe, AZ 85287-3806
United States
480 965 6335 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sunil Wahal

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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