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

The VIX measures volatility in the market at a given time. Since that isn’t something you can calculate directly we use the known relationship between volatility and current options pricing to determine volatility. When options are trading unusually high compared to normal levels the VIX goes up and vice versa

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