In the wake of equities' 2007 peak, there has been an abundance of volatility in the market. Tremendous uncertainty spawned by the credit crisis, the spike in energy prices, and declining real estate values has investor conviction waxing and waning from one extreme to another.
Over the last four decades, the S&P 500 Index has posted an average of 58 days per year with an up or down movement of greater than 1%. From October 1, 2007–the S&P 500′s historical high point–through July, 2008, the index has posted 83 such days, implying an annual rate of 100 days and a 72% increase in this metric of volatility. The frequency of bigger sways punctuates the heightened volatility even more: Since October 1, 2007, The S&P 500 has weathered 28 2% days, compared to a four-decade historical average of just 12.
For investors looking to exercise caution and keep money on the sidelines until the big market swings dissipate, counting 1% and 2% days and comparing them to historical trends could be onerous. Another measure of volatility, the Chicago Board Options Exchange Volatility Index ("VIX"), is a popular measure of market volatility. It is calculated by the exchange using forward-looking implied volatility of S&P 500 Index option prices. Referred to by some as the "fear index," it represents one measure of the market's expectation of volatility over the next 30-day period.
Since the commencement of the measurement of the VIX in January 1990, it has averaged a closing level of 19.11. In the post tech-bubble days it has been significantly lower–from 2003-2007 the VIX averaged a closing level of 15.98. For comparison, the average VIX level in 2008 thus far has been 23.48, and ended July at 22.94.
