There are lots of valid ways to look at the market. Obviously, price is important, but a number alone (e.g., 1487.85—the Feb 25, 2013, S&P 500 close) doesn’t mean much. Price related metrics like percentage changes and support/resistance levels add value, but adding time as a factor enables some really interesting measures like moving averages and momentum trackers. My favorite time-related metric is term structure—how the …
For several years I’ve periodically tried—and failed to find quotes for the CBOE’s VIX® index on Google Finance. It seemed absurd, but I expected the king of search would pull up one of the more popular indexes if they had it. It turns out that I needed to go to the 11th entry on the 2nd page of search results to find the ticker: INDEXCBOE:VIX Once …
The CBOE’s VIX index gets mainstream exposure as the “fear index”, but there’s a lot more to volatility watching than the VIX. The VIX does a good job of measuring the current level of anxiety in the market, but it has some problems. Among other things it’s: Not a good predictor of the future Often does not move in the direction people expect (opposite the …
Every couple of months it seems like there’s an uptick in articles about the CBOE’s VIX Index being broken or manipulated. Generally I expect the percentage moves in the VIX to be around a factor of 4 in the opposite direction of SPX (S&P 500). But there are significant eccentricities in the VIX that I factor in, for example Fridays tend to be down days, …
Recommended Papers Tales of the Unexpected by Andrew Haldane This accessible paper (only one equation) is the best that I’ve ever read on the differences between processes accurately modeled by Gaussian/normal distributions and those better matched by power law distributions. I have seen this distinction made many times, but this paper provided examples and reasoning that really helped me internalize the differences. Most of our stock …
