Chart of the week: Rising volatility

Source: CBOE VIX

The recent spike in volatility has been fueled by economic and political nervousness around the world, including the rapid takeover of Afghanistan by the Taliban. Dr. Nisha Long takes a closer look at the rise of the VIX.

The CBOE VIX Index, which measures market expectations for the relative strength of short-term movements in the S&P 500 Index, closed at 21.57 on August 18, a huge rise from 15.59 on the week former.

This surge in volatility has its roots in global economic and political pressures. First, the rapid takeover of Afghanistan by the Taliban sparked widespread unrest among the world’s major economies.

The US Federal Reserve also released the minutes of its July policy committee meetings, which caused a stir by revealing that most policymakers were ready to start rolling back quantitative easing later this year. Some emerging market equities retreated in response, notably Hong Kong and Taiwan.

At the end of the first quarter of this year, the VIX stood at 19.4 on March 31 and had dropped to 15.83 by the end of the second quarter on June 30. To put this in context, anything above 20 is considered high, while 20 or less indicates that the market predicts a healthy, low-risk environment.

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