MackTheKnife's Blog : SPX in the Wake of VIX Superspikes

Superspikes in the Chicago Board Options Exchange Market Volatility Index (VIX) comparable with the one of 23.95% recorded Friday are relatively rare phenomena (http://tinyurl.com/yd2t7gw).

Accordingly, I had a host of questions to be answered about them, which were the focus of a historical statistical study conducted here at the home office of the completely fictional Druids Investment Group -- Can You DIG It? -- this weekend.

Based on the VIX data between Jan 2, 1990, and Oct 30, 2009, available at Yahoo! Finance (http://tinyurl.com/ydrmvgm), I found Friday's superspike was the 35th of 20% or more from day to day in the series. Bracing myself for the equity-market action today, I then crunched the numbers to determine the historical behavior of the Standard & Poor's (S&P) 500 (SPX) in the wake of such a VIX superspike.

On the 34 trading days immediately following previous VIX superspikes, I found the S&P 500 had positive returns in 25 cases and negative returns in nine cases. On the positive side, returns ranged from 5.42% to 0.04%; on the negative side, returns ranged from -0.06% to -3.02%. The mean return was 0.80%, and the median return was 0.35%.

Muy interesante . . .