If the cues of the CBOE (Chicago Board of Options Exchange) VIX Index is anything to go by, then the volatility in global stock markets could subside in the coming days. Volatility in the global stock markets spiked last week as World Health Organisation (WHO) confirmed more than 83,000 cases of Coronavirus around the world and said that it was an epidemic.

The CBOE VIX, a measure of the US stock market volatility, is a real time index. It represents market expectation of 30-day forward-looking volatility. The index is derived from the price inputs of the S&P 500 index options and provides a near accurate measure of market risk vis-a-vis investors' sentiments. The US markets being the largest asset class globally and attracting the largest amount of fund flows can be considered as a sort of a gauge for world markets. World markets are coupled in terms of any big event.

The chart shows that the CBOE VIX index has hit 50 levels only 9 times since 1980s and crossed it only once during the 2008 financial crises. On Wednesdaymorning, the CBOE VIX was trading near 36 levels.

“Every time the CBOE VIX index hits 50 levels, the volatility subsides and the index sees sustained fall. Except, we are expecting a 2008 like market rout due to Coronavirus and the world trade to slip in a prolonged chaos, indications of VIX index shows that market volatility will reduce. Also, in India as well as the US markets, the built-up of short positions is huge,” said Rohit Srivastava, chief strategist, IndiaCharts.

VIX index is inversely related to market moves. When the markets are falling rapidly, the index rises and vice-versa. India too has its own VIX index that tracks the Nifty index. It touched a six-year high of over 25 on March 2. Prior to that, the high of India VIX was over 30 in 2014. The life time high for the index was 68.35 touched in October 2008.

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