Finance – Risk

Finance – Risk

Clemens Kownatzki, PhD, Practitioner Faculty in Finance

How Good Is the Vix as a Predictor of Market Risk? Journal of Accounting and Finance, 16(6), 39-60. (2016).


Volatility is a metric widely used to estimate financial risk. The VIX is an index derived from S&P 500 options prices designed to estimate the market’s expected 30-day volatility. Robert Whaley, the creator of the VIX, argued that it provided a cost-effective way to hedge risk but we question Whaley’s underlying assumption in this paper. We examine the VIX and implied volatility as a proxy for risk. Our studies show that the VIX consistently over-estimates actual volatility in normal times but it underestimates volatility in times of market crashes and crises making it unsuitable for many risk-management applications.

Print Friendly, PDF & Email
Author of the article
Graziadio Business Review
Graziadio Business Review is an online journal that delivers relevant business information and analysis for business, government, and non-profit managers. From accounting and finance to ethics and work/life balance, the Graziadio Business Review extends current business debates in new directions that you can use to advance your business and professional career.
More articles from

After the Covid-19 Economic Crisis

Introduction Value for Money (VfM) analysis helps governments decide whether it is more cost-effective to do a project through traditional procurement, or through PPPs. State government financial departments, project teams, and senior management can run this type of simplified VfM analysis with the help of a few consultants in order to select the ideal type … Continued

Related Articles
Management and Cultural Implications of Customer Satisfaction Differences for Help Desks in South America