Behind the Volatility Index Levels: The Paradox of 2016

G. D. Hancock
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G. D. Hancock: University of Missouri-St. Louis

International Research in Economics and Finance, 2017, vol. 1, issue 1, 44-53

Abstract: The low 2016 volatility index levels present a paradox in light of previous research suggesting periods of uncertainty and negative news events should reflect higher VIX levels. This study uses daily data for the VIX, VIX futures and the VVIX, to examine the information content of variations in the natural logarithmic changes in the index levels relative to 12 other parallel time periods encompassing 2004-2016. Straight-forward variation and predictive tests are constructed to determine signs of unusual market volatility behavior. The results reveal strong evidence of unusual volatility behavior during the 2016 election period, pocked by frequent periods of abnormal returns. The 2016 VIX levels alone are shown to be insufficient to draw conclusions regarding investor sentiment.

Keywords: VIX; VIX futures; VVIX; market volatility; investor sentiment; 2016 US presidential election (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:cxp:irecon:v:1:y:2017:i:1:p:44-53

DOI: 10.20849/iref.v1i1.270

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