Monday, September 10, 2007

VIX Macro Cycles

On my very first post in this blog, I offered a monthly chart of the VIX from 1993 to January 2007 and identified what I called four VIX macro-periods as follows:

  1. relatively low, flat volatility for 3 years from 1/93 to 1/96
  2. increasing volatility for 1 ¾ years from 1/96 to 9/97
  3. a five year period of extreme volatility from 9/97 to 9/02
  4. the current period of decreasing volatility that began in 4/02 and continues to the present

Now that I have more familiarity with StockCharts, I have updated that chart to reflect the full range of monthly VIX candlesticks from the first official CBOE data in January 1990 to the present. Adding one macro-period to the beginning and end of the original VIX chart, I now have six VIX macro cycles. Ironically, the current period starts just about the same time I started this blog.

A couple of comments on the VIX macro cycle graphic below:

  • This model is a work in progress, even though I like the way it reads at present
  • 2-4 year cycles appear to be the norm (I had earlier favored 3-5 year cycles)
  • The slope of the current macro cycle is unprecedented for the time periods considered
  • The gap between the current monthly candle and the moving averages is also unprecedented

Going forward, I will have a lot more to say about my VIX macro cycle idea, long-term VIX moving averages, and long-term VIX forecasts.

[One quick note on the ‘methodology’ used above. As this chart is more art than science, you could certainly make an argument, as I did the last time around, that the transition from C to D happened in October 1997 instead of October 1998. Frankly, I think either interpretation is correct and does not materially affect any long-term view of the macro cycles.]


Anonymous said...

do you find any correlation between VIX and $IRX or $TNX?

Bill Luby said...

Good question. I do see a fairly strong correlation between the VIX and bonds, but one which waxes and wanes at various periods. My guess is that fear and a 'flight to quality' are highly correlated, which is part of the reason, but I will delve into this at some point on the blog.



pik said...

Great Blog...thanks for the info

DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2023 Bill Luby. All rights reserved.
Web Analytics