Unspanned macro risks in VIX futures

This study investigates hidden factors in the volatility index (VIX) futures market. Risk factors spanned by the futures curve have a limited ability to capture variations in the expected excess returns. The market's hidden factors provide additional predictive power for future returns in addition to that provided by the factors spanned by the futures curve. The use of a dynamic term structure model with these hidden factors indicates that the hidden factors as a proxy for macro risks materially impact the VIX futures returns and their yield term structure and are significantly helpful in depicting the dynamics of the risk premia.