What Makes the VIX Tick?

We study minute-by-minute behavior of the VIX index and trading activity in the underlying S&P 500 options to understand the impact of macro and microeconomic forces on risk neutral volatility. VIX often increases with macroeconomic news, reflects the credibility of Fed monetary stimulus, and behaves differently before, during, and after the financial crisis. Comparing VIX to its estimated variance risk premium reveals divergences between uncertainty and risk aversion. The most prominent feature of the dynamics of VIX is mean reversion. This is consistent with liquidity provision which weakens during the financial crisis and is partly related to news arrival