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The lead–lag relation between VIX futures and SPX futures

Author

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  • Bangsgaard, Christine
  • Kokholm, Thomas

Abstract

We analyze the lead–lag relation between VIX futures and SPX futures. The two futures markets are weakly connected when market volatility is low. By contrast, when volatility is high, their prices are highly negatively correlated, with VIX futures leading SPX futures. However, the tightness of the lead–lag relation prevents the formation of profitable trading strategies in a setup that includes transaction costs. An analysis of the time variation in the lead–lag relation finds that an improvement in the relative liquidity of one market strengthens the lead of that market. Moreover, the hedging activities of market makers influence the lead–lag relation.

Suggested Citation

  • Bangsgaard, Christine & Kokholm, Thomas, 2024. "The lead–lag relation between VIX futures and SPX futures," Journal of Financial Markets, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:finmar:v:67:y:2024:i:c:s1386418123000496
    DOI: 10.1016/j.finmar.2023.100851
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    More about this item

    Keywords

    Lead–lag relation; High-frequency data; Cross-correlation; Price discovery; VIX futures hedging; Cross-market activity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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