The Truth About Vix Shrinkage

Everyone’s talking about the incredible shrinking Vix, Wall Street chief strategists included. 

The below from Nicholas Colas, ConvergEx Group chief market strategist, on Friday…


A few points on the history of the VIX here:

  • The close yesterday at 14.3 is the third lowest of the year and near one standard deviation away (6 points) from the long run average of 20.
  • Contrary to popular opinion, August is actually not the dullest month of the year, at least according to the 22 year history of the ‘Fear Index’.  That distinction goes to December, when in 7 of those 22 years the VIX actually saw its bottom for a given calendar year.  Only in 2000 was the low volume, vacation-prone August the month where the VIX bottomed for the year.
  • September and parts of the fourth quarter of any given year do, on average, see an increase in the CBOE VIX Index, meaning that investors grow more concerned about the direction of the market once Labor Day is in the rear view mirror.  The average August VIX reading since 1990 is 20.84, but the average September VIX registers at 22.17. That is an average increase of 6.4%.  There isn’t much further progress through the fourth quarter on average, and December more often ends with a whimper, as I have noted.
  • Historical volatility –the amount by which stocks actually move (rather than the VIX, which measures expected movement) has collapsed in recent days.  The 10-day actual volatility for exchange traded funds which track the S&P 500 is around 10.7%, which makes a 14.29 VIX actually look kind of rich.  As in the VIX may have more to fall in the coming days, since near term price action is essentially at near record lows as well.

The most logical question is “What gives?” – aren’t we supposed to be days away from financial Armageddon over the survival of the euro, the resolution of the “Fiscal Cliff,” a contentious and expensive campaign season, a weakening Chinese economy, and scores of other maladies?  The short answer is that we are, but I am reminded of the famous quote from St. Augustine: ‘Given me volatility, but not just yet.”  OK, his sentiment was about the ability to live a celibate and honorable life.   But you get the idea.  Using the VIX to measure every type of expected volatility is like using a thermometer to diagnose a gunshot wound.  We will see higher volatility.  At some point.  The VIX is mute on when, and that is by design.

In practice, the VIX measures expected changes in stock prices over the next 30 days.  That’s it.  It is heavily informed by recent actual volatility, as I noted.  A VIX reading of 14 shouldn’t make anyone, anywhere, feel more confident about what will come down the road in October or beyond.  It is simply the relative assurance that the weather will be clear tomorrow.  Volatility, like the weather, changes with the seasons and other factors.  And even if you are sleepwalking, it is wise to take an umbrella.



ConvergEx Group

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. immediate edge reviews 2020 commented on Sep 16

    … [Trackback]

    […] Find More Info here to that Topic: […]

  2. unicc cm commented on Sep 17

    … [Trackback]

    […] Information on that Topic: […]

  3. Eat Verts commented on Sep 22

    … [Trackback]

    […] Here you can find 75020 more Information to that Topic: […]

  4. immediate edge reviews commented on Sep 23

    … [Trackback]

    […] Find More to that Topic: […]

  5. bitcoin era login commented on Sep 25

    … [Trackback]

    […] Here you will find 57497 additional Info to that Topic: […]

  6. bitcoin loophole review commented on Sep 29

    … [Trackback]

    […] Read More Info here on that Topic: […]

  7. tor onion addresses browser commented on Oct 11

    … [Trackback]

    […] Find More on on that Topic: […]

  8. fake panerai pam 00321 commented on Oct 23

    … [Trackback]

    […] Info to that Topic: […]

  9. buy ruger handguns online commented on Dec 02

    … [Trackback]

    […] Info on that Topic: […]

  10. commented on Dec 07

    … [Trackback]

    […] Info to that Topic: […]

  11. tangerine chequing accounbt log in commented on Jan 22

    … [Trackback]

    […] There you can find 46164 more Info on that Topic: […]