We appreciate having had interesting discussions with Menachem Brenner. We thank an anonymous referee, Yankun Chen, and Bob Webb (editor) for their helpful comments. Jinghong Shu thanks research grant from the University of International Business and Economics (Project No. 73200013). Jin E. Zhang has been supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. HKU 7549/09H).
Causality in the VIX futures market†
Version of Record online: 12 JAN 2011
© 2011 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 32, Issue 1, pages 24–46, January 2012
How to Cite
Shu, J. and Zhang, J. E. (2012), Causality in the VIX futures market. J. Fut. Mark., 32: 24–46. doi: 10.1002/fut.20506
- Issue online: 4 NOV 2011
- Version of Record online: 12 JAN 2011
- Manuscript Accepted: DEC 2010
- Manuscript Received: AUG 2010
This study examines the price-discovery function and information efficiency of a fast growing volatility futures market: the Chicago Board of Option Exchange VIX futures market. A linear Engle–Granger cointegration test with an error correction mechanism (ECM) shows that during the full sample period, VIX futures prices lead spot VIX index, which implies that the VIX futures market has some price-discovery function. But a modified Baek and Brock nonlinear Granger test detects bi-directional causality between VIX and VIX futures prices, suggesting that both spot and futures prices react simultaneously to new information. Quarter-by-quarter investigations show that, on average, the estimated parameters are not significantly different from zero, thus providing further evidence supporting information efficiency in the VIX futures market. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark