• Study of the Week: What is the VIX Telling Us?

    by  • February 26, 2013 2:07 pm • Study of the Week • 0 Comments

    I’m guessing you noticed, but yesterday the VIX soared 34% on the day.  Rocky White and I decided to take multiple looks at how common this is and what it might mean going forward.

    First things first, the 34% jump was the 11th largest move since ’90.

    Yet, what amazed me was the SPX was down only 1.8%.  Yes, that is a big drop, but it seemed very out of line with what you’d expect.  Sure enough, we looked at other times the VIX jumped about 35% and the SPX was down close to 5% on average.  So you could say yesterday’s jump in volatility was rather extreme given the market drop.

    To get some more results, instead of just six we open it up some.  Looking at all VIX surges between 24% and 44% (yesterday was 34%, so 10% either way) – we now had 28 examples.  Once again, the SPX averaged a drop of 3.40% on these days, well above yesterday’s 1.80% drop.

    So, on the surface it is safe to say we have a very jittery market place to see such an incredible move in volatility.

    Next, we looked at all VIX surges of at least 30% and found the results for the SPX going out aren’t very bullish.  Returns out a week aren’t too bad, but going out more than that and it is tough to make a bullish case.

    Lastly, for fun I wondered what the highest VIX daily return was with a green SPX.  Turns out back in ’93 we had a day the VIX jumped 15% and the SPX still gained 1.9%.  Pretty sure if the VIX jumped 15% tomorrow we won’t see that again!

    Here are the top 25 of all time.  What stands out is how many of them occurred in the mid-90s.  But remember, that was a time when the VIX and the SPX both moved higher – so that makes sense.

    Shameless self promotion here, but yesterday I discussed my thoughts on volatility on CNBC.  You can watch it here.


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