A research by Stefano Fugazzi (ABC Economics) – Earlier today we published an analysis by Nik Crepaldi highlighting the fact that the VIX Index rose ahead of the Paris Attacks. Hereafter I extended the analysis to cover some of the most notable Al-Qaeda/ISIS-related terrorist acts since 9/11.
But firstly, let us briefly define the VIX Index. VIX is a trademarked ticker symbol for the CBOE Volatility Index, a popular measure of the implied volatility of S&P 500 index options; the VIX is calculated by the Chicago Board Options Exchange (CBOE). Often referred to as the fear index or the fear gauge, the VIX represents one measure of the market’s expectation of stock market volatility over the next 30-day period.
- 13 November 2015: Paris Attacks
- 7 January 2015: Charlie Hebdo Shootings, Paris
- 7 July 2005: London Bombings
- 11 March 2004: Madrid Train Bombings
- 11 September 2001: World Trade Centre, New York
As previously noted, VIX is intended to be a forward-looking index, predominantly focussing on US stocks. However, the author of this research observed the following:
- in all the instances the Index increased in the 5 trading days prior to the terrorist event i.e. the VIX closing value on day -5 is always lower than the close on the day of the event;
- with the except of 9/11, the VIX Index closed lower on the day following the attacks;
- on 9/11 the VIX did not trade as the attacks struck the Twin Towers before the Chicago Stock Exchange opened. Additionally, normal trading activity did not resume until 17 September 2001.
The above mentioned patterns may indeed have happened by chance i.e. other elements may have determined the VIX Index to increase prior to the terrorist acts (on the broad assumption that the markets, of course, could not possibly anticipate their occurrence) , as detailed in here:
Gold and Oil contraddict VIX Index on terror attack warnings
VIX and Terrorism. Why a coincidence with no causal effects
The above research was independently translated by third parties in Italian, French and Russian. Also available on Zero Hedge , Il Sole 24 Ore and Il Giornale . Also mentioned live on Italian TV (Otto e Mezzo, from 21’50”).
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