Jun 27, 2022

Curious Periodicity Of VIX Index

I was browsing LinkedIn the other day and saw a bar chart of annual average VIX levels, and noticed that they kind of go up and down as if it was a cycle. 

Intra-day effects of elevated volatility near open and close are well-known, as well as some day-of-week patterns. Seasonal effects of VIX are also obvious - the index tends to be low during summer months, and rise in the autumn months. However long-term cycles is something that I have not heard about before.

Thinking this would be an interesting thing to check I added (discontinued) VXO index from 1986 to 1990 and VIX afterwards, and this was the result:






... or as a line plot








This is quite a curious phenomenon that I did not expect to see. I do not believe that modelling long-term cycles like these has really much relevance to actual investment or trading decisions, but in order to understand the nature of volatility it is important to first dis-entangle mean-reversion effects, and then to actually think about cycles or seasonality.


Several years ago when I lived in New York one of the readers of this blog named Kris has reached out to me, and we have met up, talked about volatility and other topics, and over time gotten to know each other. Last week Kris emailed me that he sponsored a family in Ukraine, and they were able to come as war refugees to the United States. Thank you, Kris, for your help, and thank you to other readers who are helping Ukraine. 

If you are doing business with Russian government, or private Russian businesses, please try to slow down your activities - delay providing tech support, answering emails or calls, de-prioritize payments. By slowing down Russian businesses you are slowing down the war. 

If you own a telephone - please call and speak with your government representatives to support Ukraine. Most of my readers are from UK and USA - two countries that are signatory to the Budapest memorandum, and countries that are leading the support for Ukraine. About 20% of Ukraine's territory is under occupation where people are being tortured and raped; the rest of the country is under a constant threat of rocket attacks. Please call again and motivate your government to speed up the help.

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