Wednesday, April 15, 2009

Market Volatility Index (VIX) At Six-Month Lows

According to Freakonomics blogger and Yale professor Ian Ayres:

One of the most important but underreported financial indicators is the
CBOE’s Volatility Index (^VIX), which measures the market’s expectation of future volatility in stock prices (over the next 30 days). (The CBOE has written a nice technical white paper describing how it is calculated, here.) When it drops below 30 percent, it will be a strong indication that the market correction is complete and we’re back to business as usual.

Often referred to as the "fear index," the VIX represents one measure of the stock market's expectation of volatility over the next 30 day period (Wikipedia). The VIX is a widely used measure of market risk and it is often referred to as the "investor fear gauge" (Investopedia).

The chart above (click to enlarge) shows that the VIX Index is now trading below 40 for the first time since last September, and is less than half of the 80+ peaks in October and November. The general downward trend in the VIX over the last six months suggests that market volatility is moving back towards normal levels and that "investor fear" is gradually subsiding.


At 4/15/2009 7:00 PM, Anonymous PotatoChef said...

I'm not sure where I first found out about the VIX, maybe on this site. I have been following it for a little bit of time and must say that it does seem to mirror investor mood.

Of course investors, and people in general, overreact to both good and bad news.

I read somewhere that there is a furniture index (don't know the symbol) that is an excellent indicator as to the health of the economy.

At 4/27/2009 5:25 AM, Anonymous Don Sabatini said...

Furniture index? Haven't heared about it.


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