A volatility index, such as the VIX (Volatility Index) or the VDAX (Volatility DAX Index), measures market expectations about future fluctuations, also known as "volatility," of a financial instrument or an entire market. These indices are often referred to as "fear barometers" because higher values indicate higher expected fluctuations, and this often occurs during times of economic uncertainty or unrest. At the same time, lower values may indicate lower expected volatility and a more stable market situation.
So the power of such an index lies in its predictive ability: it gives investors, traders and other market participants an indication of how unstable or stable the market is likely to be in the future. This can help market participants plan and optimize their investments and strategies accordingly.
However, uncertainty and fear are only part of the equation. A high VIX or VDAX reading can also indicate that market participants are expecting large price movements, which could be both a threat and an opportunity. In addition, low volatility may indicate a lack of momentum or interest and could therefore be a warning signal for investors.
Tip: If you are interested in historical data series of the Vola Index, e.g. for your own research, you will find both a graphical representation and the OHLC prices current up to 1990 in the Tools section.
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