Do Properly Anticipated Prices Fluctuate Randomly? Evidence from VIX Futures Markets
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.
We thank Hank Bessembinder and seminar participants at Arizona State University for useful comments and the Center for Investment Engineering at Arizona State University for support. George O. Aragon had a paid consulting relationship with the Securities and Exchange Commission that ended April 2018. Sunil Wahal is a consultant to Dimensional Fund Advisors. DFA provided no funding or data for this research. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
George O. Aragon & Rajnish Mehra & Sunil Wahal, 2020. "Do Properly Anticipated Prices Fluctuate Randomly?," The Journal of Portfolio Management, vol 46(7), pages 144-159.