VIX Futures Return Decomposition

Abstract

VIX futures contracts have produced negative returns. I develop a method to decompose the daily returns of VIX futures contracts in to the return components of roll down and level. I show that roll down is the largest contributor to the negative returns. The return decomposition analysis is carried out across the VIX futures term structure which includes the one- to six-month VIX futures contracts. I use time series regressions to estimate the beta coefficients of the return components relative to the VIX. The results of the regression analyses are used to create a VIX curve strategy that is combined with the S&P 500 Index.