Extendo VIX

It’s no secret volatility has sat at extraordinary levels for quite some time now. But is this unique? Not quite yet, according a recent presentation from the man that invented the VIX, Robert Whaley, now a professor at Vanderbilt.

An important way of judging market anxiety is to examine the persistence with which VIX remains above certain extraordinary levels. From Table 1 (in the presentation), we know that the chance of observing a VIX level above 34.22 is 5%. Suppose we re-examine the VIX history to count the number of consecutive days that VIX has remained above a level of 34.22. Four periods last more than 20 days can be identified: October 16 through December 22, 1987 (45 days), August 28 through October 31, 2002 (46 days), September 26 through October 31, 2008 (26 days so far), and January 8 through February 8, 1988 (22 days). So, yes, we are experiencing abnormal behavior, but, no, it is not unprecedented. We just tend to forget.

Now we’re something like 12 more days into it. And not likely close to going below 34.22 any time soon. So 3 weeks after this presentation, it does look like we’ll set records for the amount of time we spend at extremes.

If you look at the VIX futures, it could be a while longer. March trades at about a 46, and April at a 42. Doesn’t mean we will stay elevated out that long, I mean it’s a 50/50 bet and maybe the “under” wins. And if the under doesn’t win, those numbers just represent snapshots and say nothing of whether the VIX dips into the 30’s between now and then.

What it does all suggest is that even though the The Chattering Pundit Class was way early calling these times unprecendented, looks like they may ultimately be correct.

And it all makes sense in a way. We’ve experienced a crash similar to 1987, it’s just played out over such an extended time frame. So it stands to follow that Fear will linger a bit longer.