Market Volatility or "Fear" Index
Chart of the Week for September 18, 2015 - September 24, 2015
The Chicago Board Options Exchange (CBOE) Volatility Index ("VIX") is a key measure of investor expectations for equity market volatility risk over the forward 30-day period. It is considered a good barometer of investor sentiment and is often referred to as the "fear" index. A high VIX level is generally associated with a period of increased volatility and uncertainty in the market, while a lower level corresponds to less volatility and less stress in the market.
As noted in the chart above, the VIX can change dramatically as investor concerns change. In late August 2015, U.S. equity markets experienced high volatility partially in response to global concerns about China's economy. On August 24, the S&P 500 fell as much as 5.3% intraday, and the VIX closed at 40.74 - a level the VIX had not reached since October 2011. The August 24 level is about half of the record high of 80.86, which was reached in November 2008. Prior to the August 2015 volatility, the VIX had generally traded below its 10-year average of 20.2 since late 2011 when concerns over the global sovereign debt crisis and a downgrade of the U.S. Government debt credit rating impacted equities.
Spikes in volatility cannot be predicted and fear of volatility or continued volatility without a long-term plan may lead to imprudent decision making. Prudent investors should base decisions on their own circumstances taking into consideration their goals, investment experience, time horizon and risk tolerance and not just the latest movement in the market.
Posted by: sarah_oz@yahoo.com
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