20 October 2020

The US share market is the biggest in the world, accounting for 60% of total market capitalization. (The Australian share market is only 2%.) Therefore, when investors in the US are getting scared, the rest of the world sits up and pays attention.

The chart below shows how investors have become increasingly worried about the outcome of the next US Presidential election. The VIX (for “Volatility Index”) measures investor fear by measuring how much investors are willing to pay in order to buy option protection against downside risk in the US share market. Investors can buy or sell futures contracts on the VIX index. Each futures contract has a specified maturity date in every month. The higher the price of buying a futures contract, the higher the perceived risk that the market will fall before that month’s contract matures… [read more]

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