Hey guys, just wondering if anyone had studied the VIX in the bull market of the 1990s? In the 2000's the VIX seems to be perfectly inverse to ES, but in the 1990s, the VIX and ES/SPY went up at the same time for a long period of time and the VIX seemed less responsive to moves in ES or vice versa. Any ideas why?
It may be related to the change in underlying/definition of VIX: On January 19, 1993, the Chicago Board Options Exchange held a press conference to announce the launch of real-time reporting of the CBOE Market Volatility Index or VIX. The original formula for VIX was developed by Prof. Robert Whaley and was based on S&P 100 Index (OEX) option prices. In 2003, CBOE introduced a more detailed methodology for the VIX. Working with Goldman Sachs, CBOE developed further computational methodologies, and changed the underlying from S&P 100 Index (OEX) to S&P 500 Index (SPX)
i think the change in the vix has something to do w/ it but i think it has more to do w/ a diff market environment. there were multiple prolonged periods of low vol in the 90s (and everyone knew it could stay that way) whereas in the 00s any seemingly long period of a low vix is expected to explode due to past vol spikes (e.g. europe, lehman, etc).
1) The VIX wasn't really a "tradable" instrument until several years ago. Because of that, especially during the 1990's until ~2004, the VIX didn't have to "behave predictability" as it does since ~2004. 2) During the 1990's, you had increased participation in options trading that would tend to inflate options prices, i.e. implied volatility levels, that could take years to deflate/re-align.