Title: Dynamics of VIX term structure and macroeconomic news arrivals
Authors: Ye Yue - Tampere University of Technology (Finland)
Juho Kanniainen - Tampere University of Technology (Finland) [presenting]
Kim Christensen - Aarhus University (Denmark)
Abstract: An approach is provided to incorporate scheduled macroeconomic news arrivals into a time-varying GARCH model to capture the empirical properties of VIX term structure. The traditional GARCH model is nested in our macro-news characterization, which makes it possible to examine how much VIX term structure is determined by macroeconomic fundamentals. Our model allows flexible specifications of news impact functional form and consequently variance term structure curves deduced by our model are more in comparison to the traditional GARCH model. By providing an empirical analysis with different macroeconomic news, we conclude that the VIX term structure is partially determined by macroeconomic fundamentals.