Last Friday, the VIX, the volatility index of the S&P500, closed at 12.22, significantly lower than its historical daily average of around 20.
Given that we are in a U.S. election year, it is interesting to examine the volatility regime that prevailed during past presidential elections in the months leading up to election day in November.
As shown in the image below, courtesy of Bank of America Merrill Lynch, there is a noticeable increase in volatility, primarily due to the uncertainty surrounding the outcome. Additionally, volatility tends to decrease in December.
Very interesting Vincent! Thank you for the follow up.
I thought at first that Michel made a typo when he wrote that the historical VIX was around 20, so I backtested it and the 1500-day average is indeed around that value, which is actually very high ! The thing is, the VIX distribution curve is incredibly skewed, with no value under 9.81 and values that go as high as 82 on the other side of the curve, making the average not really aligned with what we see the most often. If we look at the distribution curve (see the image above), the actual VIX reading that we are most likely to see is 12.9. This puts in perspective the current VIX value as not being that historically outstanding. Nevertheless…