Wall Street's Fear Index Hits a Record High

VIX, measuring volatility in markets, hit highest level in 15-year history Friday

By Jim O'Neill

Posted Oct 20, 2008 11:24 AM CDT

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Wall Street's Fear Index Hits a Record High — A broker looks at the monitor as he waits for the closing bell to ring on the trading floor at the New York Stock Exchange in the afternoon hours as the Dow is heading down Friday. (AP Photo/David Karp)

A little known “fear index” that measures volatility in stock prices over 30 days has risen to prominence—and to off-the-charts numbers—as traders try to predict the market’s big swings, reports the New York Times. When the VIX climbs, it’s a sign market action is about to head in a different direction, often down, and points to a market controlled by fear, not greed.

The VIX closed at 70.33, its highest point since its inception in 1993, on Friday, indicating that S&P 500 will rise or fall a near-unprecedented 20% in the next 30 days. But some traders caution that the formula feeds the fear it's intended to project. “The VIX is a self-fulfilling prophecy,” said one equity trader who says investors see the VIX break 80 and jump into the fray, selling their stocks and adding to the misery.
(More Wall Street stories.)

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