This is a follow up to a piece from the always excellent VIX & More: 2014 Had Third Highest Number of 20% VIX Spikes. V&M finds, as the title suggests, that 2014 exhibited the third most 1-day VIX spikes of at least 20% since 1990.
In this post I look at a different definition of VIX spikes that takes multi-day spikes into account: VIX closes of at least 20% above a 10-day moving average (*). I’ve used this criteria in the past (read more and more), and while it results in about the same number of spikes as V&M’s data, it also captures big moves where no one single day might have met V&M’s threshold.
The blue bars represent the number of spikes, and the grey area the median value for the VIX during that year. Note that I’ve extended the data back to 1986 using VXO prior to the launch of the VIX.
Since 2006, there has been an uptick in the number of VIX spikes. 2014 ranked second amongst all years with 5 significant spikes, despite a median VIX value near the lowest seen in the VIX’s history. Note that the market has had similar years with a high number of spikes despite a tepid VIX in 1993, 1994 and 2006.
Contrary to conventional wisdom, the VIX has actually been less “spiky” during higher VIX years. That’s partially because it’s easier for a market event to shock the volatility market when the VIX is depressed and complacent rather than already elevated and cautious, and partially due to the fact that high VIX years were more likely to have one major spike that lasted a long time (rather than a series of smaller spikes).
Note that similar results were seen in V&M’s data, and similar conclusions would have been drawn had we used other variables for calling a VIX spike other than 20% above the 10-day MA.
Was 2014 significant in terms of the number of VIX spikes? Significant yes, but not so far outside of expectations that I think it necessarily says anything about the future. What’s more concerning for me is just the general increase in the market’s tendency to spike since 2006 and whether we continue to see that increase in the future.
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Wonk note: To control for overlapping VIX spikes, I required that after the VIX rose at least 20% above its 10-day average, it had to then fall back below its 10-day average before it could then register a new spike.