Fear Index
Chart of the Week for June 17, 2016 - June 23, 2016
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 covering the period of June 15, 2011 through June 15, 2016, the VIX can change dramatically as investor concerns change. From August 2011 through late 2011, concerns over the global sovereign debt crisis and a downgrade of the U.S. Government debt credit rating caused the VIX to peak at a high value of 48.0 on August 11. In late August 2015, U.S. equity markets experienced high volatility partially in response to global concerns about China's economy. The VIX reached a peak of 40.7 on August 24, 2015 during that volatile period. A brief spike in late 2015 and early 2016 pushed the VIX as high as 28.1 on February 11, 2016, but that volatility subsided. In the last week, the VIX has been rising with the uncertainty around the British referendum to exit the European Union on June 23, 2016 and the VIX closed at 20.1 on June 15, 2016.
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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