Transitory Fear: Explaining Changes in the VIX Futures Basis

11 Pages Posted: 13 Jun 2019

See all articles by Lee A. Smales

Lee A. Smales

University of Western Australia

Date Written: May 31, 2019


Following the 2004 introduction of VIX futures, they have become an increasingly important hedging instrument and aid for portfolio diversification. We examine changes in the futures basis which, owing to their unique characteristics, can be interpreted as changes in expectations of future VIX (“fear”) levels. We find that higher levels of VIX are associated with a narrowing of the futures basis, suggesting that investors view “fear” as transitory, and a flatter forward curve. We propose news sentiment as one plausible explanation for changes in the basis. A wider (narrower) basis accompanies the more positive (negative) news associated with a falling (rising) VIX index.

Keywords: VIX, Investor Fear, Futures, News Sentiment

JEL Classification: G10, G11, G14

Suggested Citation

Smales, Lee A., Transitory Fear: Explaining Changes in the VIX Futures Basis (May 31, 2019). Available at SSRN: or

Lee A. Smales (Contact Author)

University of Western Australia ( email )

UWA Business School
35 Stirling Highway
Perth, Western Australia 6009

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