We examine how the CBOE S&P 500 Volatility Index (VIX) and the VIX Volatility Index (VVIX) may be used to forecast spikes in volatility.
We have previously discussed a study called “Forecasting a Volatility Tsunami” in which the author examines forecasting a spike in volatility using the CBOE S&P 500 Volatility Index (VIX). The paper found that spikes in volatility are typically preceded by extended periods when the VIX is subdued. The author attempted to improve the reliability by including the CBOE VIX Volatility Index (VVIX), which measures the expected volatility of the VIX itself, i.e., the volatility of volatility. They found that almost every large spike in volatility had been preceded by the 20-day standard deviation of the VIX and VVIX simultaneously falling to extreme low levels, which they defined as below the 15th percentile.
The original paper was published several years ago, and its study period only went through 2016, but our previous test, which used data from 2007 - 2024 validated the paper’s findings. With the VIX falling to its lowest level of 2026 earlier this month, we thought this would be an opportune time to update our study. Using daily price data for VIX and VVIX dating back to 2007, we found values of 0.87 and 3.40 for the 15th percentile of the 20-day standard deviation for VVIX and VIX, respectively, which were higher than the values of the original study, but not significantly so. As with the original study, we then looked for periods when the 20-day standard deviation of VVIX and VIX were simultaneously below those thresholds.
The chart below shows the daily closing values of the VIX, and, in red, the times when VIX and VVIX’s 20-day standard deviation were below the 15th percentile. As you can see, there have been multiple occasions when both indexes breached the 15th percentile threshold since the end of the original study period in 2016. In some instances, there were relatively moderate volatility spikes, while other times, like early 2018, the VIX rose by more than 100%. You will also notice that there is a cluster of red at the end of the graph as both indexes’ 20-day standard deviation fell below the 15th percentile in the final week of August. And it looks as if a pickup in volatility could already be underway as the VIX is up a little more than 8% over the last seven days (through 9/9) and was up more than 6% midday on Thursday.
To get a clearer picture of how the VIX behaves following periods when both index’s 20-day standard deviation falls below the 15th percentile, we looked out at the maximum increase and decrease in the VIX over the next 30 days. Because the sub-15 periods are often clusters of days, we looked 30 days forward from both the beginning of the cluster and the end of the cluster (only in two instances were there single-day periods.) The results are summarized in the table below and as you can see there was a noticeable bias towards the VIX rising over the next 30 days with an average increase of 29% from the beginning of the sub-15 period reading and a 45% average increase from the end of the period.
The VIX reached 18 intraday on Thursday, but there could still be additional volatility to come. A 47% increase from 14.5, around where the VIX closed last Thursday and Friday, would put it at around 21.4. Of course, these are just averages, there is no guarantee that the VIX will reach 21, or, on the other hand, that it won’t go higher. But historically, the subdued levels of volatility we experienced in late August and early September have often been followed by a spike in the VIX.
