The volatility index, or VIX, has become a popular measurement to reference in the context of predicting the market over the past couple years.
The problem is that it does not seem to have any real predictive power and I have yet to see any shred of evidence that the VIX has been shown to have predictive power over the future value of the stock market.
It is calculated from past price variance and is used in calculating the theoretical price of options, but that is it.
It is calculated from the (theoretical) implied volatility of listed S&P options, so it is indeed forward looking (not past variance).
But it is riddled with microstructural issues and to my knowledge doesn't really have any track record of predicting crashes. It will react to market events contemporaneously though, so it is a decent measure of expected future volatility.
Besides household debt, the rest of these indicators don't make much sense either. Much better would be measures of the yield curve, inflation, and corporate credit quality.
There is actual money behind the number of the VIX, but I'm not sure if you'd call it value.
There are ETFs and other vehicles that buy VIX futures, and either go long or short, which people can buy and sell. Like TVIX, XIV, etc.
There's some worry that a quick spike in VIX futures from such a low level at the wrong time could cause a catastrophic unwinding of these instruments.
The problem is that it does not seem to have any real predictive power and I have yet to see any shred of evidence that the VIX has been shown to have predictive power over the future value of the stock market.
It is calculated from past price variance and is used in calculating the theoretical price of options, but that is it.
Does anyone have any evidence the VIX has value?