Prof. Dr. Vijay Cakkade
The Volatility Indicator (Weeks) of the Indian stock market is linked to the 30-day expected volatility of futures market transactions in the national index Nifty, which has seen a significant increase. Domestic and international elements are working behind this.
The fear of decline and the greed of bullishness are constantly working in the stock market. Those who sell stocks who predict that prices will fall in the future are called bears (bears), while those who buy stocks expecting prices to rise are called bulls (bulls-taurus). Among those who have more power, the trend of the market tends to tilt and the stock market bounces or falls. In the long run, however, the market grows as a result of the positive and growth of various companies. In this, the system of 'future market' and the transactions involved in it are dealing and affecting the market on a large scale. In this too, the purchase (call) and sale (put) transactions of the next 30 days are becoming more important. It shows whether there will be overall stability in the market, the trend of fluctuations will be large. If war, elections, major calamities are expected, then 'fear' is created in the market and the market becomes violent. As our blood pressure (BP) rises in crisis, this is what happens here. The VIX or Volatility Index-VIX was developed by the Chicago Exchange Center (USA) in 1993 to quantitatively measure such 'fear' indicator conditions. Just as blood pressure is measured into normal and alarming groups, the market volatility indicator is also measured. Weeks has been measured in India since 2008. This technique is known as the 'fear index' of the market.
Fear Index Measurement (Weeks Measurement)
Is the upcoming market environment conducive to investment? A complex statistical method is used to measure the large fluctuation, uncertainty. For this, K i.e. strike price or current futures price is the first factor in Nifty futures trading. Share prices of Nifty take the second factor (S). How much time (T) is left to maturity of the futures? The third factor is government bonds which are considered very safe. The rate of return (R) on it is taken as zero risk rate. The last but most important component of volatility (S) deals with the estimation of market price fluctuation intensity. This estimate depends on Nifty futures market price.
Usefulness of Fear Index (Weeks Usage)
Speculators, investors and mutual fund managers dealing in the stock market can all use the fear index or VIX as a useful index to help them in their decision-making process. When the vix is ​​low then stability is expected in the market. It shows good investment and low risk. If the vix is ​​high, rising, there is no confidence in the market. The market indicates decline, volatility and hence not investing. The pre-Covid vixen went from 30 to 50 with the arrival of Covid, while the market fell by 40 percent.
An important point must be noted. That is, Weeks is a non-directional viewer. The correlation between Vixen and Nifty shows negative. Statistics from last decade show that Nifty falls when Vixen rises.
Share the use of Vixen
Day traders in the market may realize that the level of risk has increased and may minimize the loss or trade more cautiously. From the point of view of long-term investors, this fear index is not much of a concern. Because over time the market is restored. One can take advantage of some of the best investment opportunities available during this period. Large and quantitative investors can limit their potential losses by using hedge techniques or hedging techniques. This technique is mostly used in the futures market while buying and selling options. Fluctuations in the market can provide huge benefits. A stradal technique of simultaneous buying and selling can be used to take advantage of uncertainty. Mutual fund managers can increase their returns by investing in high volatility (high beta) stocks when the vix rises. Low-volatility stocks tend to buy more if the wicks fall.
Investment direction:
Elections and policy uncertainty increase market uncertainty and volatility and then stabilize the market. A fear index is useful to take advantage of this. It is also used to avoid what can only be a 'fear' loss despite being a good investment. As the mature and well-managed Indian stock market provides consistent good returns over the long term, it is helpful to keep the investment direction positive.
Indian Weeks
The Volatility Indicator (Weeks) of the Indian stock market, linked to the 30-day expected volatility of futures market transactions in the national index Nifty, has seen a large increase in it. Domestic and international elements are working behind it. At the country level, the population (general) elections are an important event, linked to the policy uncertainty of the new government. Internationally, US interest rate policy (the Fed) and war-stressed international conditions are increasing 'fear' uncertainty in the market. At the same time, even in times like Corona, investment fear increases. In the case of India, the correlation between elections and the fear index is very clear, it was as high as 92 when the global meltdown occurred in 2008. Weeks then increased to 39 before the 2014 election and 30 before the 2019 election. Currently, the week has increased from 17 to 22, with the possibility of going up to 30. Indian Weeks are considered to be in the general range of 15 to 30. When the vixen is said to be 15, it means that the stock index can move up or down by 15% in the next 30 days.
