S&P/ASX 200 VIX
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Template:Unreviewed S&P/ASX200 VIX (ASX Code: XVI) is a real-time index that reflects the market’s expected volatility in the Australian benchmark equity index, the S&P/ASX 200.
The S&P/ASX 200 VIX (A-VIX) index is a measure of market sentiment and provides a gauge of market expectations of near-term volatility in the Australian equity market.
The A-VIX can indicate investor sentiment and market expectations.
A relatively high A-VIX value implies that the market expects significant changes in the S&P/ASX 200, while a relatively low A-VIX value implies that the market expects minimal change.
This characteristic often results in the volatility index moving inversely to the Australian equity benchmark index, the S&P/ASX 200.
Only by looking at both the S&P/ASX 200 and the S&P/ASX 200 VIX will you receive a complete picture of the Australian equity market.
Uses and interpretation
The A-VIX is primarily used as an indicator of investor sentiment and market expectations. A relatively high A-VIX value implies that the market expects significant changes in the S&P/ASX 200 over the next 30 days, while a relatively low A-VIX value implies that the market expects minimal change. The chart below illustrates this relationship. Similarly, when the A-VIX is at relatively high levels, investor sentiment is perceived to be uncertain. Conversely, when the A-VIX is at relatively low levels, it implies greater investor confidence. Indicators such as the A-VIX are often perceived to show characteristics of mean reversion by oscillating around a long-term average (or mean). In other words, a move away from the long-term average towards high or low extremes is usually followed by a move back towards the long-term average. The implication is that high levels of volatility may be followed by a return to more normal volatility levels, and low levels of volatility may be precursors to an increase in volatility. The A-VIX is reported as an annualised standard deviation percentage that can be converted to a shorter time period. For instance, an A-VIX value of 20% can be converted to a monthly figure, remembering that volatility scales at the square root of time, the formula is:
20% x ?1/12 = 5.77%
In the above example, index options over the S&P/ASX 200 are incorporating the potential for a one standard deviation return over the next month of +/- 5.77%.
More information on volatility index [1]
About ASX Australian Securities Exchange
References
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