Wednesday, April 26, 2006

Three Day High and Low VIX: What It Means

We made a three day high on the Dow on Wednesday with a VIX reading below 12. So I decided to investigate what happens three days later.

Since March, 2003 (N = 792 trading days), when the Dow has made a three-day high and the VIX has been 12 or higher (N = 268), the next three days in the Dow have averaged a gain of .22% (163 up, 105 down).

When the Dow has made a three-day high and the VIX has been under 12 (N = 69), the next three days in the Dow have averaged a loss of -.03% (37 up, 32 down).

Once again, we see that a low VIX is associated with subnormal short-term returns.

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