Sunday, January 1, 2012

1/1/2012: Groundhog Year 2012 - part 1

In the tradition of looking back at the year passed, let's take a quick view of one of my favorite indicators for risk assets fundamentals: the VIX index.

CBOE Volatility Index finished the year well off the inter-year highs, but nonetheless in an unpleasant territory. VIX closed December 2011 at an elevated 23.40, ahead of December 2010 close of 17.75, 2009 close of 21.68 and only behind the December 2008 levels of 40.00. December 2007 close was 22.50 and December 2006 was 11.56.

More unpleasant arithmetic emerges when we consider inter-annual performance. Historical maximum for daily close (from January 1990 through present) is 80.86, while maximum for 2010-present was 48.00 set on August 8, 2011.

The historical average for VIX is 20.57, while the average for January 2008-present is 27.74, for January 2010-present is 23.38 and for 2011 as a whole - 24.20, implying that wile 2011 was not the worst performing year on the record, it was certainly worse than 2010. Table below summarizes annual data comparatives.

Average intra-day volatility actually marks 2011 as the worst year on record. Average intra-day spread for VIX stands at 9.28 in 2011 against 8.97 in 2010-present and 9.08 in 2008-present. And both 3mo and 1mo dynamic standard deviations posted poor performance for VIX in 2011, making it the worst year on the record other than 2009. VIX dynamic 1mo semi-variance closed the year on 7.80 and annual average of 4.26 against 2010 average of 3.96 and 2009 average of 5.78.

Charts below highlight the fact that 2011 was a poor year for fundamentals-based analytics:




All above suggest that volatility is the starting point for 2012. Welcome back to the New 'Groundhog Day' Year.

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