Volatility On The ASX Has Spiked: Here's What It Means

Getty/Ulet Ifansasti

Markets in the US tanked overnight with the Dow losing more than 300 points and the broader S&P 500 off 2.08%. The market in Tokyo is off 0.75% and locally the ASX is down 1.9% at 5,197.8.

The moves have seemingly come out of the blue for a number of investors. It was less than a month ago that US stock market indices were making new all time highs.

As a result, the markets “fear” gauge, the options volatility indices or VIX, in both Australia and the US has spiked.

Chart: investing.com

Last night the US VIX was up 24.16% to 18.76 and this morning the ASX VIX has risen 13.9% to 16.66.

There are two ways to look at the level on both fear gauges.

The first is that the “lack” of “fear” means that the recent whipsaw price action in the Australian and US markets has not materially undermined the markets structure.

So there is no large falls or crash coming.

Source: Twitter

The second way to look at the market, and one which noted twitterati Assad Tannous and Calibre Invest discussed this morning, is that this move is only really just getting started and that volatility could spike substantially further.

The work of Benoit Mandlebrot and the GFC showed that period of acute volatility clusters. If Tannous is right then this market has some rocky days ahead.

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