This week, global financial markets have experienced a "roller-coaster" of significant volatility. On Monday, the VIX volatility index, also known as the "Wall Street fear index", surged to over 65, the fourth-highest level in history, behind only the 1998 financial crisis, the 2008 financial crisis, and the 2020 pandemic outbreak. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

However, as global markets rebounded, Wall Street began to question the accuracy of this "fear index".

Reasons for the surge in VIX

After the surge in the VIX index on Monday, experts measuring volatility said that the index's violent fluctuations could be attributed to several technical factors, including a significant lack of liquidity, short-covering of those who bet on volatility fails, or just the way volatility is calculated.

Former U.S. Treasury Secretary Summers said on a television program on Friday:

"My understanding is that because some illiquid tools were used in calculating the VIX index, Monday's volatility of the VIX index may have been somewhat artificial."

VIX disconnected from futures

On Monday, the highest VIX rose to over 65, but during the same period, the rise in VIX futures was smaller. Derivatives experts believe that VIX futures more accurately reflect actual fund flow and may more accurately measure market sentiment.

Rocky Fishman, founder of derivative analysis firm Asym 500, said:

"Actual trading is more important than market quotes. In the event of significant market volatility outside normal trading hours, investors may find that VIX futures for the near term measure hedging demand more accurately than VIX itself."

"Overestimated" VIX, incorrect "buy signal"?

As an important indicator that has existed for more than thirty years and witnessed many financial risks such as financial crises and the "end of volatility", the VIX index is a key input to many Wall Street models that predict stock market trends.

A sudden surge like Monday's is usually considered a signal of investor surrender and can lay the foundation for a rebound. The S&P 500 has indeed continued to rise for three consecutive trading days, with investors continuing to pour large amounts of money into stock exchange-traded funds (ETFs).

Regarding whether the surging VIX should be seen as a "buy signal," Peter Tchir, head of macro strategy at Academy Securities, said that viewing VIX breaking through 65 as a bottom-fishing signal is incorrect. He wrote in a report:

"So many people take comfort from the 'fact' that 'we have experienced a volatility surge and it is now over,' and that makes me very nervous."

Editor/Lambor