RT Journal Article SR Electronic T1 News Sentiment as an Explanation for Changes in the VIX Futures Basis JF The Journal of Investing FD Institutional Investor Journals SP 92 OP 102 DO 10.3905/joi.2020.1.125 VO 29 IS 4 A1 Lee A. Smales YR 2020 UL https://pm-research.com/content/29/4/92.abstract AB Chicago Board Options Exchange Volatility Index (VIX) futures have become an increasingly important hedging instrument and aid to portfolio diversification. The authors study changes in the futures basis, which can be interpreted as changes in expectations of future VIX (“fear”) levels. The authors find that higher levels of VIX are associated with a narrowing of the futures basis, suggesting that investors view fear as temporary, and a flatter forward curve. News sentiment offers one plausible explanation for changes in the basis. A wider (narrower) basis accompanies the more positive (negative) news associated with a falling (rising) VIX index. The identified relationships are most pronounced for extreme changes in the VIX futures basis and appear to be concentrated in recession.TOPICS: Options, futures and forward contractsKey Findings• Increases in VIX cause the VIX futures basis to narrow and the forward curve to flatten.• Negative news sentiment is one source of heightened VIX and associated forward curve flattening.• The impact of news sentiment is greatest during recession and for the most extreme changes in the VIX futures basis.