According to those who believe in efficient markets, market based prices should be reliable indicators of future events. If the efficient market hypothesis holds true, then the VIX should be a reliable predictor of future stock market volatility. Is it?
The VIX is supposed to forecast the 30 day future volatility of the S&P 500. Below is a chart of the VIX against a chart of the actual realized volatility 30 days from the time of measurement of the VIX. On average, the VIX has expected a slightly more volatile environment than has been realized over the last 8 years. The average difference between the VIX and actual volatility in this period was about 3.25%.
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