Claim check: High volatility means buy
“When the VIX is high, it is time to buy (be greedy when others are fearful).”
What the data says
Does not hold Not supported by the data: after “20-day realized volatility in its top 10% of the last 5 years”, the average 63-day return was +5.7% against +1.2% for all days (medians over 9 markets); it was higher than usual in 6 of 9 markets and statistically clear, with at least 20 independent events and the same sign in both halves, in 1. Results are mixed across markets and cannot be told apart from chance.
No effect we can tell from chance, or the opposite effect.
Who says it
Common saying on fintwit; also Warren Buffett's 'be greedy when others are fearful'.
Origins are as commonly cited and were not independently verified.
How we tested it
The VIX is not in our data, so we use 20-day realized volatility of each market as a stand-in (annualised). Event: it ranks in the top 10% of its own last five years (at least one year of history needed). We record the 63-trading-day return from that close (events at least 63 days apart) and compare it with the average 63-day return of the same market. This is realized, not implied, volatility.
Results
20-day realized volatility in its top 10% of the last 5 years 63-day (claim: higher than average)
| Market | Events | Mean after | All days | Difference | Median after | Up share | t-stat | Reading |
|---|---|---|---|---|---|---|---|---|
| S&P 500 | 13 | +6.7% | +3.6% | +3.1% | +7.7% | 85% | 1.4 (likely noise) | Right way, likely noise |
| Gold | 19 | +1.5% | +2.2% | -0.8% | -0.5% | 47% | -0.5 (likely noise) | No effect |
| Silver | 16 | +6.6% | +3.1% | +3.5% | +3.2% | 56% | 0.4 (likely noise) | Right way, likely noise |
| Oil | 21 | +6.1% | +1.1% | +5.0% | +7.2% | 71% | 1.2 (likely noise) | Right way, likely noise |
| Natural gas | 22 | -9.7% | -4.4% | -5.3% | -13.1% | 32% | -0.9 (likely noise) | No effect |
| Commodities | 22 | +5.7% | +1.2% | +4.5% | +4.3% | 73% | 2.1 | Clear and stable |
| Agriculture | 12 | -2.8% | +0.6% | -3.4% | -4.9% | 25% | -1.9 (likely noise) | No effect |
| EUR/USD | 14 | +0.4% | -0.2% | +0.6% | +1.3% | 64% | 0.4 (likely noise) | Right way, likely noise |
| Bitcoin | 16 | +36.3% | +13.5% | +22.7% | +20.6% | 75% | 1.8 (likely noise) | Right way, likely noise |
| Ether | 9 | +22.5% | +11.0% | +11.5% | +26.2% | 67% | 1.0 (likely noise) | Too little data |
Difference from the average, by market (63-day)
By horizon: mean difference from all days
| Market | 5-day | 21-day | 63-day |
|---|---|---|---|
| S&P 500 | +0.4% (84) | +1.2% (26) | +3.1% (13) |
| Gold | +0.1% (109) | -0.1% (35) | -0.8% (19) |
| Silver | -0.1% (114) | +0.5% (34) | +3.5% (16) |
| Oil | +0.5% (119) | +2.3% (36) | +5.0% (21) |
| Natural gas | -0.8% (142) | -5.4% (41) | -5.3% (22) |
| Commodities | +0.6% (93) | +2.0% (33) | +4.5% (22) |
| Agriculture | -0.2% (70) | -0.8% (24) | -3.4% (12) |
| EUR/USD | +0.1% (82) | +0.3% (25) | +0.6% (14) |
| Bitcoin | +1.3% (66) | +9.5% (21) | +22.7% (16) |
| Ether | +2.1% (43) | +8.5% (13) | +11.5% (9) |
Average -day return after the signal vs all days (S&P 500)
9 of 10 markets had enough data.
Stability across the two halves of history
A saying that only works in one half of the history is not much of a rule. Each row shows the effect in the full history, the first half and the second half; green means the claimed effect was present.
| Market | Full history | First half | Second half |
|---|---|---|---|
| S&P 500 | +3.1% (13) | +5.0% (4) | +2.1% (9) |
| Gold | -0.8% (19) | -1.1% (6) | -1.6% (13) |
| Silver | +3.5% (16) | -4.8% (5) | +5.9% (11) |
| Oil | +5.0% (21) | +4.1% (10) | +5.5% (11) |
| Natural gas | -5.3% (22) | -1.2% (9) | -8.6% (13) |
| Commodities | +4.5% (22) | +1.7% (8) | +5.3% (14) |
| Agriculture | -3.4% (12) | -4.0% (2) | -4.5% (10) |
| EUR/USD | +0.6% (14) | -0.6% (6) | +1.5% (8) |
| Bitcoin | +22.7% (16) | +27.8% (12) | -1.0% (4) |
| Ether | +11.5% (9) | +21.1% (3) | +9.3% (6) |
The honest caveat
Realized volatility is not implied volatility; the real VIX includes forward-looking option pricing.
Descriptive statistics from historical data, before costs. Not a forecast and not investment advice.
Questions
When the VIX is high, it is time to buy (be greedy when others are fearful).
Not supported by the data: after “20-day realized volatility in its top 10% of the last 5 years”, the average 63-day return was +5.7% against +1.2% for all days (medians over 9 markets); it was higher than usual in 6 of 9 markets and statistically clear, with at least 20 independent events and the same sign in both halves, in 1. Results are mixed across markets and cannot be told apart from chance.
How was this claim tested?
The VIX is not in our data, so we use 20-day realized volatility of each market as a stand-in (annualised). Event: it ranks in the top 10% of its own last five years (at least one year of history needed). We record the 63-trading-day return from that close (events at least 63 days apart) and compare it with the average 63-day return of the same market. This is realized, not implied, volatility.
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Markets used
S&P 500 · Gold · Silver · Oil · Natural gas · Commodities · Agriculture · EUR/USD · Bitcoin · Ether