Volatility indices: A leading market indicator

Abstract

Volatility index by definition is a measure of market risk. Historically, the volatility index has acted reliably as a fear measure. High levels of volatility indices are coincident with high degrees of market turmoil, whether the turmoil is attributable to stock market decline, the threat of war, unexpected change in interest rates, or a number of other newsworthy events. Volatility index can be computed by anyone who has the trade data with him and this can act as a good benchmark in assessing the risk management policies of the institution. Many broking firms and institutions already have their own volatility indices as part of their Risk management kit.