CBR Briefing #81

How to gauge volatility, one asset at a time

• To gauge uncertainty in the stock market, traders often use the CBOE Volatility Index (VIX), which reflects expectations of future volatility of the United States’ biggest stocks. But University of Chicago’s Rui Da and Chicago Booth’s Dacheng Xiu have developed a measure of the real risk of individual assets such as stocks, futures, and exchange-traded funds.
• Designed as an interactive app on Xiu’s Risk Lab website,* the gauge provides daily estimates of assets’ annualized realized volatility. The researchers use high-frequency data on the assets’ past or realized returns, including some trade-and-quotes data collected in millisecond increments.
• One example, shown below, charts the volatility of the biggest ETF that tracks the S&P 500. The sharpest spike, bringing the measure above 100 percent, came during the height of the 2008–09 financial crisis.