The Informational Association between the S&P 500 Index and VIX Options Markets

38 Pages Posted: 6 Sep 2012 Last revised: 22 Jan 2013

See all articles by Dian-Xuan Kao

Dian-Xuan Kao

National Taiwan University

Wei-Che Tsai

Oregon State University; National Sun Yat-sen University - Department of Finance

Yaw-Huei Wang

National Taiwan University; UNSW

Date Written: August 29, 2012

Abstract

We set out in this study to investigate the informational association between the S&P 500 index and VIX options markets by examining the relationship between trading activity in VIX options and changes in the VIX in a high-frequency framework. As opposed to any lead-lag relationship, our results reveal a consistent and significant contemporaneous relationship. Our empirical findings are strengthened when we examine the crisis period encompassing the collapse of Lehman Brothers and when the variables are compiled only from out-of- the-money options. When taking into consideration the impacts of liquidity in the VIX options market and the periodical patterns of the intraday time series, the conclusions drawn from our empirical analysis remain unchanged.

Keywords: S&P 500 Index Options, VIX Options, Trading activity

JEL Classification: C53, G13

Suggested Citation

Kao, Dian-Xuan and Tsai, Wei-Che and Wang, Yaw-Huei, The Informational Association between the S&P 500 Index and VIX Options Markets (August 29, 2012). Midwest Finance Association 2013 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2138063 or http://dx.doi.org/10.2139/ssrn.2138063

Dian-Xuan Kao

National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Wei-Che Tsai

Oregon State University ( email )

Corvallis, OR 97331
United States

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

Yaw-Huei Wang (Contact Author)

National Taiwan University ( email )

Department and Graduate Institute of Finance
College of Management
Taipei, 106
Taiwan
+886233661092 (Phone)
+886283695581 (Fax)

UNSW ( email )

Sydney, NSW 2052
Australia

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