Tuesday, December 16, 2008

VIX Trends Around FOMC Announcement Days

I have recently received several requests to update research I posted in the first month of the blog (January 2007) under the title of VIX Price Movement Around FOMC Meetings.

The general pattern identified almost two years ago is still intact. In the chart below, I have aggregated the data for 19 years of VIX history covering a period spanning ten days before to ten days after some 150+ FOMC meetings. With the closing VIX price on the Fed days indicated by a black dot, it is easy to identify a pattern of volatility increasing in the week prior to the announcement, then dropping dramatically for three days following the announcement, and slowly building back to pre announcement levels thereafter.

Not surprisingly, one of the most predictable aspects of the VIX is that it has a tendency to increase dramatically on the day before the announcement as anxiety builds about possible changes in Fed policy, then drop by about 2.3% on the day of the announcement as the markets discover that the worst fears were not realized and/or the Fed’s actions and statements had been largely discounted in advance.

For a more detailed interpretation, check out my commentary in the January 2007 post.

[source: VIX and More]

5 comments:

Anonymous said...

Great posting about the VIX trends around FOMC meeting days. The VIX decreased to 52.37 (-7.7% @ 4:15 PM). This is 35.2% lower than the November twentieth close of 80.86 recorded at the the November market lows. In accordance with the graph that accompanies your posting, further decreases in the Vix cash index can be anticipated over the next few trading days.

Anonymous said...

yes i will wait a couple of days to vix become overbought and then short the market.

Seems like an overreaction pattern.

Anonymous said...

To both: How about yesterday where the SPX was down, as well as the VIX. And it wasnt marginal... about 4.5%? No more fear in the market short term?

Anonymous said...

Anon,
i dont belive we are seeing light in the end of the tunnel.

Economic situation havent changed to justify a sustained rally.

At most we may be getting out of extreme fear into plain fear.

Anonymous said...

My December 16th posting that is listed below was accurate as the Vix cash index decreased from 52.37 on December 16th close to todays close of 45.11 (@ 4:10PM).

Great posting about the VIX trends around FOMC meeting days. The VIX decreased to 52.37 (-7.7% @ 4:15 PM). This is 35.2% lower than the November twentieth close of 80.86 recorded at the the November market lows. In accordance with the graph that accompanies your posting, further decreases in the Vix cash index can be anticipated over the next few trading days.

December 16, 2008 1:28 PM

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