Why is VIX called “the fear index”?

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I’ve read many places that the VIX index is “the fear index” of the stock market. Nobody ever goes any deeper than that. I get that it’s a complex computation based on the change in price of a lot of stocks, and that it roughly correlates to volatility in the market. But “fear”?

In: Economics

6 Answers

Anonymous 0 Comments

It’s a measure of volatility in the market, it’s not exactly a fear index. It might be by correlation though – there’s rarely volatility where markets are quickly spiking upwards, volatility is usually due to market crashes and sudden down movements. 

Upward stock movements tend to be slow and steady, so VIX/volatility is usually lower during those periods.

But nothing in theory stops low-VIX, steady *downwards* stock movement either.

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