Invest
Did fear itself trigger Wall Street plunge?
Investment products with links to the VIX, or fear index, could have “amplified” last week’s market correction, an investment manager has argued.
Did fear itself trigger Wall Street plunge?
Investment products with links to the VIX, or fear index, could have “amplified” last week’s market correction, an investment manager has argued.
CIO at ipac Jeff Rogers has contended that last week’s Wall Street fall was worsened by asset allocation strategies and products with links to the VIX, or fear index, more than any significant re-assessment of fundamental outlook.
The Dow Jones Industrial Average fell 1,175 points last Monday – its largest fall in six years and followed a 666 point fall on the preceding Friday.
The VIX measures the stock market’s predictions of volatility and allows investors, through options, to insure against major share market moves.
As such, as investor uncertainty rises and the share market increases in volatility then the price of insurance option contracts increases, as does the VIC index.
Speaking in an AMP Capital insight, Mr Rogers said, “To be sure, investors are right to be more worried than before about inflationary pressures arising from improved global economic conditions, the associated upward revision on the future path of interest rates and how that in turn impacts the valuation of share markets.
“However, I would suggest that these expectations haven’t changed anywhere near as rapidly as market prices. Investment products linked to the VIX appear to have amplified the recent market adjustment.”
Continuing, he said that assets and strategies without links to the VIX, like fixed income and currency markets, had a more orderly adjustment.
Mr Rogers said that while the VIX was initially designed to measure volatility expectations in the US share market, it now allows investors to bet on volatility’s performance itself through derivative instruments and exchange-traded products.
“This has introduced the possibility of a destabilising feedback loop because there is often a requirement for these funds to quickly sell market exposure in response to a rise in volatility,” he said.
“This action can, in turn, push VIX even higher. That appears to have been the case this past week.”
Yesterday, SPDR rejected criticisms that ETFs (exchange-traded funds) were to blame for the Wall Street fall, urging investors to remember that exchange-traded notes, while a potential culprit, are distinct from ETFs.
The investments products manager at the ASX, Andrew Weaver, said criticisms of ETFs’ role in the sell-off were “doomsday advice” from the active managed sector.
Noting that there was a slight increase in sellers in the ETF sphere over the days of the fall, Mr Weaver said, “The 6 February [trading] was really the only day when there were net sellers when the market was down 3.2 per cent, so even the days when it was sort of less large drops – Monday and the Friday when there was 1.5 per cent an 0.9 per cent respectively – there were net buyers of ETFs on both those days across the board.”
Property
Property price growth slows in July, but will this downward trend last?
Despite the impacts of lockdowns on the broader economy, the housing market continued to grow in July, albeit showing signs of an impending slow down, new data has revealed. ...Read more
Property
Millennials believe first home buyers need more support
Australia’s up-and-comers in the housing market say more needs to be done to slow rising house prices. ...Read more
Property
3 in 4 borrowers in trouble are in lockdown: ANZ
Despite offering support, ANZ said freezing home loan repayments will be the last resort, as three in four requests for support stem from NSW. ...Read more
Property
RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attempts by APRA to cool the housing market. ...Read more
Property
Federal incentives are driving more first home buyers into the market
While property prices continue to grow, new research suggests that the government’s current crop of first home buyer incentives is having an impact on this segment of the market. ...Read more
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Property
Property price growth slows in July, but will this downward trend last?
Despite the impacts of lockdowns on the broader economy, the housing market continued to grow in July, albeit showing signs of an impending slow down, new data has revealed. ...Read more
Property
Millennials believe first home buyers need more support
Australia’s up-and-comers in the housing market say more needs to be done to slow rising house prices. ...Read more
Property
3 in 4 borrowers in trouble are in lockdown: ANZ
Despite offering support, ANZ said freezing home loan repayments will be the last resort, as three in four requests for support stem from NSW. ...Read more
Property
RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attempts by APRA to cool the housing market. ...Read more
Property
Federal incentives are driving more first home buyers into the market
While property prices continue to grow, new research suggests that the government’s current crop of first home buyer incentives is having an impact on this segment of the market. ...Read more
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
