Top VIX Crushes in History
Yesterday’s
sharp downward move in the VIX gave me a reason to tweet that the volatility
crush as seen in the SPX and VIX was among the top 25 in history. Upward pressure on the VIX toward the end of
the session dropped the VIX down to the 30th largest VIX decline in
history, but along the way the Twitterati raised a number of questions about
volatility crushes and the VIX as a measurement tool of broad market volatility
crushes.
Since I
have never seen any data related to the VIX and volatility crushes before, I
thought this might be an opportunity to present some of my data and talk about the
findings. In the chart below, I have
captured the 25 largest one-day declines in the VIX since 1990 and have presented
data showing the forward performance of the SPX in periods from one to 100 days
and I have also added some brief commentary regarding the causes. In some cases I link the volatility crush to
a previous VIX spike and use some explanatory shorthand in the process. For instance, the top crush day, May 10, 2010,
followed 2 days after the 21st largest VIX spike (“2d+
#21”).
[source(s): CBOE, VIX and More]
Of
course, most of these volatility crush days coincided with huge jumps in the
SPX, but there are some interesting exceptions, not the least of which was the
0.04% decline in the SPX back on
April 11, 1990. That just happens to be
the only day for which I cannot find any obvious explanatory catalyst – to the
extent that a 0.04% in stocks can actually have a catalyst – but given the
proximity to the upcoming Gulf War, my guess is that some sort of news related
to Iraq played into this event.
Note
also how many of these volatility crush instances follow other important
market-moving high fear events one or two days later, in true mean
reversion fashion. Examples on this
list range from the flash crash,
Greece, Lehman
Brothers and Bear Stearns to several VIX all-time highs, Russian political
and economic crises, the Boston marathon bombing, etc.
Things get even more interesting if you compare the top 25 VIX
crushes to the top 25 VIX spikes in history (for an identical table recapping
the top 25 spikes refer to Last
Two Days Are #5 and #6 One-Day VIX Spikes in History.) For starters, the top 25 VIX spikes all move
up at least 31%, while none of the top 25 VIX crushes managed to eclipse the
30% decline level. Also note the
differences in the mean reversion predictive value of spikes versus
crushes. In general, the performance of
the SPX following VIX crushes is modestly lower than that of the SPX in
general. On the other hand, the
performance of the SPX following VIX spikes is generally better than the SPX in
general – much more so if the September 29, 2008 outlier is dropped from the data
set.
Another point that I think is worth making speaks to the overall
changes in the volatility space. The
critical data point is that 11/25 of the top 25 VIX crushes happened since the
beginning 2010, while 14/25 of the top 25 VIX spikes have occurred during the same
period. This means that we have had as
much in the way of big volatility moves in the list seven years as in the
previous twenty years of VIX data. In
other words, the volatility landscape is changing and the rise of VIX futures
and VIX ETPs
are no doubt an important part of that change.
For those who
may be interested, you can always follow me on Twitter at @VIXandMore
Related posts:
- Last Two Days Are #5 and #6 One-Day VIX Spikes in History
- VIX Sets New Record with Nine Up Days in a Row
- Volatility During Crises
- Forces Acting on the VIX
- A Conceptual Framework for Volatility Events
Disclosure(s): the CBOE is an advertiser on VIX and More
