The Lead-Lag Relation between VIX Futures and SPX Futures

We analyze the lead-lag relationship between VIX futures and SPX futures on a sample of high-frequency data. We find that the two futures markets are weakly connected when market volatility is low. In contrast, when volatility is high, their prices are highly negatively correlated and with the VIX futures leading the SPX futures. We study the determinants of the lead-lag relation, and find that an improvement in the relative liquidity of one market strengthens the lead of that market. In addition, we compute a measure of cross-market activity and find that days of high activity are associated with a strengthened VIX futures leadership. The results provide some indication that VIX futures hedging activities of dealers impact the lead-lag relation. We also document that, when dealers at an aggregate level are in a negative gamma position, an increase in SPX option dealers’ rebalancing activities further strengthens an existing VIX futures leadership