The Year in VIX and Volatility (2015)
Every year one
of my most-read posts is my annotated overview of the year in VIX and
volatility. Now that I have been doing
this for the past eight years, the aggregated view of volatility from 2008 to
the present makes for a fascinating concise history not just of volatility, but
more broadly of the financial markets and of economic activity in general.
The graphic
below captures most of the highlights from 2015 and from a volatility
perspective, it was a year for the record books. During August we saw the largest one-week VIX spike (+113%) that resulted from unprecedented back-to-back
days of VIX spikes of more than 45%! The
cumulative jump in the VIX pushed the VIX to a high of 53.29 – the only time outside of the
2008-09 financial crisis since the launch of the VIX in 1993 that the VIX has topped 50.
[source(s): VIX and More]
While most
investors pointed to China
as the proximate cause of the record VIX spike(s), a VIX and More fear poll
one week after the big VIX spike also highlighted “market structural integrity
(HFT, flash crash, exchange issues, etc.)” as almost on par with China
concerns, with “market technical factors (breach of support, end of trend,
etc.)” not that far behind.
The balance of
the year saw a wide variety of events that moved the markets, including the Fed’s
first rate hike in nine years; crude oil plummeting to $34/bbl.; shock waves in
the high-yield bond market due to low oil prices; chilling terrorist attacks in
Paris and in California; Puerto Rico announcing it will default on some of its
debt; turmoil in the currency markets when the Swiss National Bank ended the
peg of the Swiss franc to the euro; a dramatic boom-bust cycle in Chinese
A-shares – and a flurry of ineffective interventions on the part of the Chinese
government to restore stability; a proxy war between Saudi Arabia and Iran in
Yemen; and the European Central Bank committing to $1.2 trillion of
quantitative easing.
As noted
previously, even with all of the volatility, Every
Single VIX ETP (Long and Short) Lost Money in 2015.
Finally, since
2011, I have been maintaining a proprietary Macro
Risk Index that measures volatility and risk across a broad range of asset
classes, including U.S. equities, foreign equities, commodities, currencies and
bonds. In 2015, the Macro Risk Index was
consistently higher than it has been during any year since the 2011 inception.
What does high
volatility in 2015 mean for 2016? During the past two weeks, Barron’s published two opposing
(but not necessarily inconsistent) perspectives on volatility in 2016. For the case for rising volatility and what
to do about it, try Jared Woodard’s Prepare
for Rising Volatility in 2016. I provide
the contrarian point of view in The
Case Against High Stock-Market Volatility in 2016.
Related posts:
- The Year in VIX and Volatility (2014)
- The Year in VIX and Volatility (2013)
- The Year in VIX and Volatility (2012)
- The Year in VIX and Volatility (2011)
- The Year in VIX and Volatility, 2010
- Chart of the Week: The VIX and Volatility in 2009
- The Year in Global Volatility (2008)
- Last Two Days Are #5 and #6 One-Day VIX Spikes in History
- China Growth and Market Structural Integrity Top List of Fear Poll Concerns
- Every Single VIX ETP (Long and Short) Lost Money in 2015
Disclosure(s): net short VIX at time of writing
