Does VIX Accurately Work As A Reliable Risk Gauge?

Markets are becoming harder and harder to predict in 2022. One of the biggest questions, right now, is whether a reliable common measure of volatility can work and show risk direction.

Traders lack a reliable measure of the risk level when they have to make investment decisions. Instead, they derive direction from the Chicago Board Options Exchange Volatility Index.

It is commonly known as Wall Street’s fear gauge which reflects the market’s estimates of future volatility levels.

A higher VIX reading could mean increased fear as well as elevated risk while a low VIX reading means the market is testing a less stressful period. This is why the VIX moves in the opposite direction of the market.

But as investors mix their dealings through increasingly fluctuating markets, some analysts express their worries that this trusted measure of prediction is no longer working. The Wall Street fear gauge does not work in an environment that suffers from heavy uncertainty, which is exactly when traders most need it.