The Effect of Political Uncertainty: Evidence from VIX Futures Term Structure
Xingyi Hu Zhaodong Zhong
This paper examines the relationship between the 2020 U.S. Presidential Election and VIX futures term structure and shows that the latter can early indicate changes in the effect of political uncertainty. Specifically a hump-shaped pattern in VIX futures term structure around the Election with higher prices around the event and lower prices after is detected at least from January 2020. We find that political uncertainty affects the convexity of VIX futures term structure and prove that it explains the hump-shaped pattern. We also obtain consistent results using data from battleground states the betting market and the previous election.
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Political uncertainty Market uncertainty VIX futures term structure the U.S. Presidential Election