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 the expected volatility of stocks, which means how much people expect stocks to make a large, sudden move. The larger or the more likely a move they expect, the more they’re willing to pay for options, so the higher the VIX.

Stocks tend to go up gradually and down suddenly. A stock that keeps going up steadily will generally have a low volatility. A stock that looks like the bottom is about to fall out will have a high volatility. So volatility tends to be about graph go down

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