Thursday, October 22, 2009

Volatility Index Falls Below 21 to New 13-Mo. Low

The CBOE Volatility Index (^VIX) fell to a fresh 13-month low today of 20.69, closing at the lowest level since August 28, 2008. From the high of 80.86 on November 20 of last year, the VIX has fallen by more than 60 points, and is back to the pre-financial crisis level. Just another indication that the worst is behind us.


At 10/23/2009 8:31 AM, Anonymous morganovich said...

like forward currency rates, this is not the indicator you think it is. saying that a low vix means the worst is behind us is a meaningless (and inaccurate) statement. the vix was at levels similar to current ones in august of 2008. clearly that was not a sign of clear sailing ahead...

vix is a trailing, not a leading indicator. it's just a measure of implied volatility on options. think of it as a gauge of how much fear is being hedged with options.

the vix is always low after big up moves and spikes during corrections. it tends to drop and stay low when markets rally (and has also been in a secular downtrend since the 90's due to increasing options market depth and efficiency)

however, it has no forward predictive value. it is purely reactive to the demand for hedging. contrarians would argue that a vix this low is a sign of complacency and is actually quite bearish, and while i wouldn't invest based on it, i think that's a more credible opinion than claiming that a low vix is bullish.

At 10/23/2009 11:44 AM, Blogger Benjamin Cole said...

Gee, it just looks like it goes balooey during recessions, and stabilizes during recoveries.
Anyway, this recession is over globally, and soon in the USA.
We have a 20-year global boom coming...this time the globe is the locomotive, and the USA is the train.
In Asia, the recession and recovery are old news.

At 10/23/2009 3:03 PM, Anonymous morganovich said...


if you read my post more carefully, i think you'll find that i'm not expressing an opinion on the recession one way or the other, i am just saying that the VIX index is not a predictive measure of future economic or stock market performance.

further, the vix has absolutely nothing to do with recessions or even economic growth in general. it's a measure of implied volatility on listed options contracts. it correlates to recessions only inasmuch as equity markets do. it will lead or lag GDP depending on what the markets do and the demand for hedging that results.

graph vix vs. the SPX and you'll see a strong negative correlation with a small lag. graph it against GDP and you'll get a muddy result with little predictive value.


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