VIX Implied Volatility as a Time-Invariant, Stationary Assessor of Market Nervousness/Uncertainty

Ehud I. Ronn ()
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Ehud I. Ronn: Department of Finance, McCombs School of Business, The University of Texas at Austin, 2110 Speedway Stop B6600 Austin, TX 78712-1276, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2022, vol. 25, issue 03, 1-13

Abstract: Financial markets serve numerous roles, amongst them of course is the uncoerced exchange of securities. In addition to that role, they serve a very useful function of conveying to market observers the information about the future, with the challenge being our ability to elicit and interpret that information. This paper addresses that latter function regarding the option markets which provide the value for the VIX 30-day implied volatility on the S&P 500 Market Index. It is demonstrated that the peak values of VIX during Persian Gulf I (1990–1991) and Persian Gulf II (2003) were nearly identical. The VIX measure is then computed during the crises of 2008–2009, 2020 and 2022. Critically, this paper demonstrates the valuable informational content provided by the “term structure of VIX†, the set of cross-sectional implied volatilities observed with different times to expiration.

Keywords: Informativeness of financial markets; VIX as a measure of market nervousness/uncertainty (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0219091522500205

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