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Episode 5: Why the Surge in Demand for Volatility Data?

In this week’s episode of Data on the Data, Roger Hirst and Oliver Hetherington of Refinitiv, look at the surge in the usage of volatility data, even though volatility has been remarkably well behaved. Are US investors returning to equity volatility products to help enhance their yields? It’s a phenomenon that’s concentrated in the Americas and amongst brokers and banks.

  • Hi I'm Oliver, and welcome to Data on the Data, I'm looking at volatility this week. That's because in analyzing usage patterns by Eikon customers, we've seen a real jump in interest, particularly in the US. The number of users accessing the data on the VIX index, the market's fear gauge, is up 73% from the start of the year, and the total number of hits is up almost 400%. What's going on here when the VIX index itself is at a 13 month low? Here's Real Vision's Roger Hirst with some thoughts. 

    Thanks Ollie. So measures of volatility today look like they're behaving quite normally. The VIX recently closed below 20 for the first time since the pandemic ripped through risk markets in March of last year. And many people's preferred measure of risk, the volatility of volatility index or the VVIX, is also close to recent lows. Now, it's true that we can't say the volatility is cheap, the VIX is still well above the levels it reached prior to the pandemic. And when we compare the VIX to the actual volatility of the underlying S&P 500, we can say that the VIX at 20 is expensive compared to the one-month realized volatility, which is closer to sixteen point five. But even that's not historically significant. So on the surface, things look relatively normal. However, when we look at the data usage, we can see there's been a sharp increase in both users and hits for the VIX, the VVIX and the Nasdaq equivalent the VXN. In fact, the data usage today is significantly higher than it was during the peak of the mayhem back in March 2020. So what could be driving this? It's not a mad rush to meme stocks. GameStop predates the data spike by over a month. It could be uncertainty around higher yields, but many equity indices are near their all-time highs. It's not the quarterly expiry March 2021 data usage is well in excess of last year's quarterlies, and the surge in data usage is mainly confined to the American equity indices and has been concentrated among brokers and investment banks. So it could be that after a significant rally, allied to a belief that policymakers are settling in for an extended period of lower for longer interest rates that yield enhancement via volatility products is now back in full swing across the Americas. Now that could compress levels of volatility further, but it also increases the probability of more equity air pockets and also volatility shocks. 

    Thanks, Roger. I think the key takeaway here is the contrast of relatively normal market volatility versus our increased usage of volatility data and how that might play out in equity markets going forward. Thank you for watching Data on the Data. Don't forget to subscribe so you never miss an episode. 

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