The Economic Fear Index, also known as the VIX or the "Fear Gauge," is a measure of market volatility and investor sentiment. It is referenced frequently on the news or in economic articles. The index is calculated based on the prices of options contracts for the S&P 500 index, and reflects the level of uncertainty and fear among investors. A high VIX reading suggests that investors are nervous and uncertain about the future direction of the market, while a low reading indicates confidence and stability.
The Economic Fear Index was first introduced in 1993 by the Chicago Board Options Exchange (CBOE), and has since become one of the most widely-followed measures of market volatility. The index is calculated in real-time and updated throughout the trading day, allowing investors to track changes in market sentiment and adjust their investment strategies accordingly. There are also pooled investment vehicles that allow a person to track this index as well.
While the Economic Fear Index is not a perfect predictor of market trends, it can provide valuable insights into the psychology of investors and the overall health of the economy. By monitoring the VIX and other measures of market volatility, investors can gain a better understanding of the risks and opportunities associated with different asset classes, and make more informed decisions about where to invest their money.
Bibliography:
CBOE. (n.d.). CBOE Volatility Index® (VIX®). Retrieved from https://www.cboe.com/vix/
D'Errico, R. (2016). The VIX: A reliable market indicator? Journal of Investing, 25(1), 88-97.
Whaley, R. E. (2000). The investor fear gauge. Journal of Portfolio Management, 26(3), 12-17.
Chicago Board Options Exchange. (n.d.). Cboe Volatility Index® (VIX® Index). Retrieved March 15, 2023, from https://www.cboe.com/vix
Investopedia. (2022, December 27). VIX - CBOE volatility index. Retrieved March 15, 2023, from https://www.investopedia.com/terms/v/vix.asp
Thomson Reuters. (n.d.). Economic Fear Index. Retrieved March 15, 2023, from https://www.reuters.com/finance/markets/indicators?symbol=VIX