Volatility on European and Asian markets sets off the Vix "fear index"

Jessica Morris
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The Vix is commonly referred to as the "fear index" (Source: Getty)

A widely watched "fear index" jumped 16 per cent in intraday trading to 22.19 points amid increasing concern about a slowdown in China's economy.

A purchasing managers survey released early this morning showed China's factories shrank at the fastest rate in almost six-and-a-half-years in August. The news has weighed on stock markets in Asia, Europe as well as US.

The Vix index hit its record high of 89.53 on October 24, 2008 during intraday trading.

The Chicago Board Options Exchange Volatility Index, or Vix, is thought to be a gauge of investors' nerves. The index measures the market's expectation of 30-day S&P 500 volatility implied by the prices of near-term S&P options. It's led to a belief we should be scared when the Vix ticks up, and relieved when it careers down.

But some commentators rubbish this as a market myth.

"The truth is that the Vix is not an “Index of Fear” and never has been," Steve Sedgwick, CNBC anchor, previously wrote in City AM.

"It’s a plain old measure of premium: premium in option products that are a derivative of the equity market, a market that apparently is at, or near, all-time highs in many cases."

(Source: Yahoo Finance)

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