An Investigation of the Lead-Lag Relationship Between the VIX Index and the VIX Futures on the S&P500 PDF Download
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Author: Sotirios Karagiannis
Publisher:
ISBN:
Category :
Languages : en
Pages : 14
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Book Description
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.
Author: Sotirios Karagiannis
Publisher:
ISBN:
Category :
Languages : en
Pages : 14
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Book Description
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.
Author: Florian Auinger
Publisher: Springer
ISBN: 3658089695
Category : Business & Economics
Languages : en
Pages : 102
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Book Description
Florian Auinger highlights the core weaknesses and sources of criticism regarding the VIX Index as an indicator for the future development of financial market volatility. Furthermore, it is proven that there is no statistically significant causal relationship between the VIX and the S&P 500. As a consequence, the forecastability is not given in both directions. Obviously, there must be at least one additional variable that has a strong influence on market volatility such as emotions which, according to financial market experts, are considered to play a more and more important role in investment decisions.
Author: Rong-Yuan Qin
Publisher:
ISBN:
Category :
Languages : en
Pages : 21
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Book Description
This empirical study examines the short-run lead-lag relationship between the VKOSPI index futures and its underlying spot index and KOSPI index using daily data from September 17, 2014 to May 2017. We used the unit root test, Johansen-Juselius cointegration test, Granger causality analysis, impulse response function analysis, and variance decomposition analysis to test the hypothesis that the futures market with no market frictions leads the spot market in this analysis. The results of these analyses using level variables show that there is a bi-directional lead-lag relationship between the VKOSPI futures and VKOSPI index, but in the analysis using first-difference variables, there is only a unidirectional lead-lag relationship form VKOSPI index to VKOSPI futures. This means that the VKOSPI spot market is more efficient than the futures market. Also, there are no lead-lag relationship from VKOSPI futures or VKOSPI index to KOSPI index. It is inconsistent with the main expected hypothesis in our study and the conclusions of previous studies which argue that the VIX futures lead the VIX index and S&P 500 index. This results are related to a lack of liquidity of VKOSPI futures contracts in the Korean derivatives market. Because generally, the Korean institutional investors prefer option trading, to hedge market risk rather than VKOSPI futures. Change in the price of the option will result in the change in the VKOSPI index and subsequently the mechanism that alters the VKOSPI futures or the KOSPI index.
Author: Matthew T. Moran
Publisher: CFA Institute Research Foundation
ISBN: 1944960961
Category : Business & Economics
Languages : en
Pages : 49
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Book Description
During the past two decades, the Cboe Volatility Index (VIX® Index), a key measure of investor sentiment and 30-day future volatility expectations, has generated much investor attention because of its unique and powerful features. The introduction of VIX futures in 2004, VIX options in 2006, and other volatility-related trading instruments provided traders and investors access to exchange-traded vehicles for taking long and short exposures to expected S&P 500 Index volatility for a particular time frame. Certain VIX-related tradable products may provide benefits when used as tools for tail-risk hedging, diversification, risk management, or alpha generation. Gauges of expected stock market volatility for various regions include the VIX Index (United States), AXVI Index (Australia), VHSI Index (Hong Kong), NVIX Index (India) and VSTOXX Index (Europe). All five of these volatility indexes had negative correlations with their related stock indexes price movements, and all five volatility indexes rose more than 50% in 2008. Although the five volatility indexes are not investable, investors can explore VIX-based benchmark indexes that show the performance of hypothetical investment strategies using VIX futures or options. Before investing in volatility-related products, investors should closely study the pricing, roll cost, and volatility features of the tradable products and read the applicable prospectuses and risk disclosure statements.
Author: Irena Vodenska
Publisher:
ISBN:
Category :
Languages : en
Pages : 27
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Book Description
We study the VIX Index, often referred to as “the investor's fear gauge,” relative to the observed volatility of the S&P 500 Index to investigate the relationship between these two measures of financial markets variability and to understand the directionality of their influence on one another. Calculated as a weighted average of put and call options on the S&P 500 Index, the VIX is considered as a forecasting indicator of the S&P 500 Index's volatility over a one-month period. We examine the daily VIX and S&P 500 Index volatility data for the 20-year period between 1990 and 2009 and find that VIX lags the S&P 500 one-month volatility for the period that we study. Furthermore, we analyze the VIX Index and the S&P 500 volatility for different time periods, when the financial markets exhibit: (i) higher level of stability with volatility below two standard deviations from the mean and (ii) lower stability regimes, with volatilities above two standard deviations from the mean. We find that in general, the VIX overestimates the S&P 500 Index volatility during the stable financial market regimes, and underestimates the S&P 500 Index volatility throughout high volatility periods.
Author: Sotirios Karagiannis
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of FTSE/ASE-20 futures and the underlying FTSE/ASE-20 cash index of the Athens Stock Exchange. The results suggest that there is a bidirectional causality between spot and futures returns, rejecting the usual result of futures leading spot market. However, spot market seems to play a more important role in price discovery. Volatility spillovers across the two markets are examined by using a bivariate EGARCH(1,1) model. This model is found to capture all the volatility dynamics. The results indicate that the transmission of volatility is bidirectional. Any piece of information that is released by the cash market has an effect on futures market volatility, and vice versa. Nevertheless, the volatility spillover from spot to futures market is slightly stronger than in the reverse direction.
Author: Russell Rhoads
Publisher: John Wiley & Sons
ISBN: 1118118480
Category : Business & Economics
Languages : en
Pages : 293
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Book Description
A guide to using the VIX to forecast and trade markets Known as the fear index, the VIX provides a snapshot of expectations about future stock market volatility and generally moves inversely to the overall stock market. Trading VIX Derivatives will show you how to use the Chicago Board Options Exchange's S&P 500 volatility index to gauge fear and greed in the market, use market volatility to your advantage, and hedge stock portfolios. Engaging and informative, this book skillfully explains the mechanics and strategies associated with trading VIX options, futures, exchange traded notes, and options on exchange traded notes. Many market participants look at the VIX to help understand market sentiment and predict turning points. With a slew of VIX index trading products now available, traders can use a variety of strategies to speculate outright on the direction of market volatility, but they can also utilize these products in conjunction with other instruments to create spread trades or hedge their overall risk. Reviews how to use the VIX to forecast market turning points, as well as reveals what it takes to implement trading strategies using VIX options, futures, and ETNs Accessible to active individual traders, but sufficiently sophisticated for professional traders Offers insights on how volatility-based strategies can be used to provide diversification and enhance returns Written by Russell Rhoads, a top instructor at the CBOE's Options Institute, this book reflects on the wide range of uses associated with the VIX and will interest anyone looking for profitable new forecasting and trading techniques.
Author: Athanasios Fassas
Publisher:
ISBN:
Category :
Languages : en
Pages : 19
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Book Description
The current paper tests and documents the relationship between the term structure of VIX futures and the underlying equity returns. Furthermore, it investigates the signaling effects of VIX futures term structure in respect to future stock index movements. The objective of this empirical analysis is to verify if a steep upward-sloping term structure indicates a late phase of a bullish trend and conversely if an extreme negative term structure suggests an over-sold market, as certain market participants believe.The empirical findings of this study suggest that there is a strong statistical significant positive contemporaneous relationship between the changes in the VIX futures term structure and the returns of the underlying equity index. Finally, the econometric analysis lends some support to the hypothesis that the term structure of VIX futures can be used as a contrarian indicator for investing in the equity market.
Author: Ilias Visvikis
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of stock index futures and the underlying cash index in the FTSE/ASE-20 and FTSE/ASE Mid-40 markets of the Athens Stock Exchange. Empirical results confirm previous findings that there is a large contemporaneous relation, together with asymmetric lead-lag behaviour between the cash and futures markets. There is evidence that the futures lead the cash index returns, by responding more rapidly to economic events than stock prices. This asymmetric lead-lag relation can be attributed to the predictive power of futures returns, supporting the price discovery hypothesis that new market information is disseminated faster in the futures market compared to the stock market. After examining whether daily volatility in futures prices has systematically lead daily volatility in the cash index, the results provide a weak indication that cash volatility spills some information in the futures market volatility in the FTSE/ASE-20 market. In the FTSE/ASE Mid-40 market, the results indicate that there are robust volatility spillovers from the futures to the cash market, which imply that the futures market can be used as a price discovery vehicle.
Author: Russell Rhoads
Publisher: Harriman House Limited
ISBN: 0857197126
Category : Business & Economics
Languages : en
Pages : 161
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Book Description
Russell Rhoads is one of America’s leading experts on VIX, the Volatility Index. In The VIX Trader’s Handbook he takes a deep dive into all things associated with volatility indexes and related trading vehicles. The handbook begins with an explanation of what VIX is, how it is calculated, and why it behaves the way it does in various market environments. It also explains the various methods of getting exposure to volatility through listed markets. The focus then moves on to demonstrate how traders take advantage of various scenarios using futures, options, or ETPs linked to the performance of VIX. Finally, a comprehensive review is presented of volatility events that shook the markets, including the 1987 crash, Great Financial Crisis, 2010 flash crash, and the 2020 pandemic. By understanding how VIX behaved leading up to these market shocks, and reacted afterwards, traders can better equip themselves ahead of future events. A wide variety of strategies that are implemented in both bearish and bullish equity markets are introduced and covered extensively throughout. The VIX Trader’s Handbook is essential reading for all those who are intending to trade volatility—from those who wish to gain an understanding of how VIX and the related trading products behave, to those intending to hedge equity exposure or take advantage of the persistent overpricing of option volatility. You won’t want to trade volatility without it.
