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VIX and future stock market performance

VIX and future stock market performance

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Published by Alexander Gloy
A study on correlation between VIX (volatility) index and future stock market performance
A study on correlation between VIX (volatility) index and future stock market performance

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Categories:Business/Law
Published by: Alexander Gloy on Jan 22, 2013
Copyright:Attribution Non-commercial

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01/22/2013

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Lighthouse Investment Management
How the market works - VIX and subsequent performance - January 22, 2013 Page 1
How the market works
"VIX and subsequent performance"
This study has been updated and corrected; please disregard the version dated January 19, 2013.
Contents
Summary ....................................................................................................................................................... 2Does the VIX Index contain any information about future stock market performance? ............................. 3Conclusions ................................................................................................................................................... 4Appendix: Scatter charts ............................................................................................................................... 5
 
Lighthouse Investment Management
How the market works - VIX and subsequent performance - January 22, 2013 Page 2
Summary
 
Investors are misled in their widespread beliefs about the VIX(volatility index).
 
 
Correlation between the VIX Index (VIX) and future stock marketperformance is basically zero.
 
 
VIX has no predictive value; it is a function of historic (realized)volatility and market expectations of future volatility. Thoseexpectations might or might not materialize.
 
 
Lightho
How the market works - VIX and su
Does the VIX Index contperformance?
To answer the question we analyzevarious time intervals since 1990. If would expect to see a scatter cloud
use Investment Management
bsequent performance - January 22, 2013
ain any information about future
d daily data for the VIX Index and the S&P 500 Indethe VIX and future stock market performance werresembling a Brownian (or random) motion:Looking at performance one month afterwe observe a scatter cloud resembling aR-squared is basically zero, indicating nobetween a certain VIX level and future p Page 3
tock market
 
x, looking atunrelated, youthe VIX reading,Brownian motion.correlationrformance:

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