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]