The FTSE 100 Implied Volatility Index, which tracks the UK’s 100 biggest firms, will give London its own version of the Vix index, a widely used measure in the US that rises when investors get nervous about the future price of stocks.
The Vix, conceived in the early 1990s, tracks America’s S&P 500 market but the launch of the FTSE version – to be called the Ivi – will let money managers gauge the fear in the London market on a nightly basis.
“The idea of the fear factor has always been based on the US market and that isn’t always the same view as the UK. Here we have the UK fear factor,” FTSE Group chief executive Mark Makepeace told City A.M.
These type of indices are often referred to as a “fear” index because they are based on the expected volatility of prices in the future.
The FTSE index is based on data from complex derivatives – put and call options – used by people to speculate or hedge their bets against prices rising and falling taken over a 30 day, 60 day, 180 day and one year period.
Data shows the 30 day Ivi reached 16.545952 on Tuesday, lower than the historical data for 2012 which has an average of 17.9, suggesting investors are not currently as worried about future price shocks.
Since 2000, data shows the Ivi has averaged a 30 day score of 21.9, with the index reaching a high of 49.5 in 2009 as market panic set in after the financial crisis.
The Vix index hit its record high of 89.53 on October 24, 2008 during intraday trading.