Volatility Index Could Double in the Next 12 Months, Says Natixis

  • Volatility index at risk of rising above 20 within a year
  • Political instability, business cycle, central banks cited

Volatility bears beware.

The CBOE Volatility Index -- better known as the VIX -- could double within a year, according to Natixis Global Asset Management’s Brett Olsen and Nicholas J. Elward.

“It stands to reason that the market will see a reversion to the mean and find the VIX trading in the 20+ range before too long,” they wrote in a recent blog post.

Geopolitical unrest, U.S. political instability, an aging U.S. business cycle and central banks rolling back easy credit policies are the reasons cited for a potential jump in volatility, by Olsen, an ETF capital market specialist and Elward, head of business development and ETFs in the company’s Strategic Product and Marketing Group.

The VIX index traded at about 10.25 on Thursday, just above a more than two-decade low reached in June. The 20-year average for the index is 20.7. Explanations for why the index has remained subdued range from a low level of economic surprises to the influence of volatility-tracking securities.

The last period the VIX was this low, between 2004 and 2006, ended with a spike in volatility and the great recession of 2008, according to Natixis’s Olsen and Elward. They suggest another jump is possible.

“With these volatility-increasing risks before us, we strongly believe the VIX could double within a year.”

— With assistance by Sid Verma

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