This article appeared in the November 2013 ASX Investor Update
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Our new report will help you understand how investors viewed market volatility and longer-term market sentiment trends.
The chart below shows how the sharemarket correction seen during the first half of October was matched by the A-VIX rallying from values between 12 and 13 at the end of September to above 16 by 7 October.
The resumption of the S&P/ASX 200 rally saw the A-VIX move lower with several closes below 12, the lowest levels we have seen in the A-VIX since the start of the year.
An A-VIX at these levels is suggestive of continued confidence in the Australian market. This has been reflected in the S&P/ASX 200 making new highs during October and moving to levels not seen since 2008.
S&P/ASX200 and S&P/ASX200 VIX correlation
- September to November 2013
The graphic below shows market sentiment at the end of October was in positive territory.
The next chart shows the A-VIX over 15 months to October 31, 2013. The 52-week high was 21.67, and the 52-week low was 10.54.
S&P/ASX 200 VIX line chart
- August 2012 to October 2013
The next chart shows the relationship between the A-VIX and S&P / ASX 200 index between January 2008 and October 2013. Note how the A-VIX (the blue line below) which measures expected market volatility, peaked during the 2008 global financial crisis, 2010 eurozone crisis, and in late 2011 amid fears of another GFC. As the A-VIX rose, the S&P/ASX 200 fell (green line).
S&P/ASX200 and S&P/ASX200 VIX correlation - January 2008 to October 2013
Understanding the A-VIX
The S&P/ASX 200 VIX (A-VIX) is a real-time volatility index that provides investors, financial media, researchers and economists with an insight into investor sentiment and expected levels of market volatility. The index tracks S&P/ASX 200 index option prices as a means of monitoring anticipated levels of near-term volatility in the Australian equity market.
Since a volatility index at relatively high levels implies a market expectation of very large changes in the S&P/ASX 200 while a relatively low VIX value implies a market expectation of very little change, the S&P/ASX 200 VIX will often move inversely to the equity market.
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