The Efficiency of the VIX Futures Market:
A Panel Data Approach

Abstract

This article examines whether VIX futures prices are unbiased and efficient predictors of the VIX index. The particular empirical analysis differs from the usually applied tests in that it uses a panel estimation approach. Panel regression has several advantages as it offers more flexibility in modeling the efficiency of several futures contract with overlapping datasets. As a result, this methodology enables the authors to include all daily closing prices of VIX futures contracts that expired between May 2004 and December 2009, a total of 64 contracts.

The empirical findings support the hypothesis that VIX futures are good predictors of spot VIX values. The tests show that the VIX futures with a forecast horizon up to 23 days do not incorporate a significant risk premium and, thus, can be considered as unbiased and efficient estimators of the relevant spot VIX levels.