A Really Low VIX Doesn’t Mean It Can’t Go Lower
Another “Hey the VIX is really low!” article is out in the WSJ. It is similar in message to the Trading Markets post, which I blogged about here: Is the VIX Too Low?
The WSJ article is worth a read, although it doesn’t present anything ground-breaking.
This evening I will dig deeper into the low VIX issue to see if we can draw some conclusions and even make some predictions about the future. You’ll note the Trading Markets and WSJ posts simply note that the VIX is low, that it has been low before, and that it could go lower, or not. I think we can dig deeper than that.
8 Responses to A Really Low VIX Doesn’t Mean It Can’t Go Lower
we have reports on Afgans turning on U.S. troups. Iraq is helping Iran skirt our efforts. Im buying if only to hedge. though the vix may go lower what are the odds it may go higher?
We’ll see if we can’t determine some odds tonight. I have no idea what the post will look like or what it will uncover. Flying blind here. Just going to go through my regular machinations…
There are two periods in the past 20 years of a prolonged low VIX; 2004 to mid 2007, and 1993 to mid 1996.
During these years the S & P stayed in tight upward ranges with gains of around 15% for the year.
In recent years with autumn selloffs the VIX is already elevated in August;
2011: VIX between 20-40,
2010: VIX between 20-25,
2008: VIX was hovering around 20 in August, quickly exploded to 30+ by mid September,
even 2001 VIX finished August at 25.
Using history the low VIX is telling us, expect a bullish market, growth stocks will outperform a safety trade, and being fully invested is likely an acceptable risk.
Thanks for posting that.
Fine comment SirRepubicat.
While I may differ as a matter of business, and can’t choose the facts you’ve presented, all boats can float higher on a managed time line.
You’ll find my research here supports what you have written Republikat: http://ibankcoin.com/woodshedderblog/2012/08/19/what-does-a-low-vix-mean-going-forward-expect-spy-outperformance/
I’m still leery until late October due to historical data on seasonality.
Volatility tends to spike drastically until the end of October.
http://www.seasonalcharts.com/volatilitaet_aktienindices_sp.html
