The trouble with volatility.
Some how risk has been become an interchangable word for Volatility and vice-verse. And I understand how that has come about, and is not the focus of this post. Rather what me curious is why the idea of Volatility index (VIX) is taken to mean as an index for how risky the stock market is. The VIX is basically designed using the S&P index model with listing of companies mostly from the major indexs. Which is odd since companies in most major indexs have a lot of large AAA rated, fortune 500 companies. Which means that even having a few AAA fortune 500 companies makes the VIX kinda useless since it's not a index of risk, but rather just another index with fewer AAA fortune 500 companies than the S&P and Dow Jones. Why do people pay attention to this index? And does anybody know of any indexs that have only risky, A or lower rated companies? BONNE.
What do you mean? The VIX is meant to represent the vol of S&P 500 through a blend of options. S&P 500 is generally considered to be the best gauge of overall US Equity performance, so it makes sense the most widespread vol metric would be one based on that index.
I had a hard time following this rather incoherent post. The VIX is based on the 30-day implied volatility of S&P 500 options. It is not meant to be a perfect measure of equity risk, but traders do look at not just the current VIX price but also its term structure to gauge what the overall "fear" sentiment is. In the last few years or so, VIX futures have seen much more active trading than the options, due to hedging.
Is there a volatility index for the wilshire 5000?
In any case, it should be less than the VIX on average, because of the benefits of diversification
Volatility is one of many types of risk.
Also, companies aren't rated; their bonds are rated. AAA does not mean the equity is not risky. Also, very few companies are AAA; I think just MSFT, ADP, JNJ, XOM by S&P. If you took them out of the S&P, the index wouldn't change significantly.
Fortune 500 is not the same as the S&P 500, and you shouldn't conflate the two.
The VIX doesn't have term structure.
There's a reason nobody pays attention to the Wilshire 5000; it is 0.99+ correlated to the Russell 3000.
In sum,
Now I'm not an equity guy, so correct me if I'm wrong, but the VIX does have term structure (observed via the futures curve). I think what you meant is that the index itself does not account for term structure?
The VIX is a number, just like the S&P 500 is a number. The S&P 500 does not have term structure.
Futures on the VIX obviously have term structure, just like SP and ES have term structure on the S&P 500.
Pay no attention to OP. This is the same troll who claimed he couldn't understand why Mastercard was worth more than Visa because the stock price was higher. //www.wallstreetoasis.com/forums/mastercard-is-priceless
Nothing to see here, do not feed.
Just a difference of wording I suppose.
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