Investors’ Heterogeneity in Beliefs, the VIX Futures Basis, and S&P 500 Index Futures Returns

Abstract

This study analyzes the impact of the VIX futures basis on subsequent S&P 500 index futures returns using quantile regression. The results show that the impact varies with return distributions and that the effect is stronger under bad market conditions than under good market conditions. The evidence also shows that the VIX futures basis provides incremental information for the purpose of risk management. Overall, our evidence supports the conclusion that the VIX futures basis and investors’ heterogeneity in beliefs are important factors that affect S&P 500 index futures returns. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:939–960, 2017

Overnight returns of industry exchange‐traded funds, investor sentiment, and futures market returns

“…The futures markets for VIX futures, E‐Mini S&P 500 index futures, and E‐Mini Dow Jones index futures are used to explore the relationship between overnight returns of industry ETFs and futures returns. Following Bansal et al, (2010, 2014) and Lee et al (2017), continuous futures prices are obtained from Datastream . Our sample period for the industry ETFs and futures prices is from April 1, 2004 to August 31, 2021.…”

Asymmetric return–volatility relation around the clock

“…Badshah (2013) offers empirical support for this hypothesis showing a stronger relation between return and volatility when return is negative as compared to when return is positive. Lee et al (2017) show the impact of VIX on returns is stronger under bad market conditions than under good market conditions. Moreover, Finucane et al (2000) and Slovic et al (2002) state that the impact of affect heuristics in combination with time pressure that dominates in decision‐making during the periods of extreme volatility.…”