Does A Record Low VIX Have Any Predictive Power

With the VIX index crashing to levels last seen some 938 days ago in 2014, and prior to that 3624 days ago in 2007 just prior to the financial crisis...

 

... many traders have asked does the VIX plunging to near record lows below 11 - a place they have been only 1.6% of the time since 1990 - have any predictive value for stocks.

According to Citi' Brent Donnelly, the answer is mixed.

Note that the VIX is now on a 10 handle which is a fairly rare occurrence. Out of 6,813 trading days since 1990, only 110 have been below 11 in VIX (1.6%). I looked to see if there is any forecasting value (i.e., does low VIX forecast future performance?) and the answer seems to be no. Sometimes, like 2006, VIX stays low for ages and stocks keep rocketing. Other times, like 2005, the low VIX precedes a stock market correction.

Unfortunately, since we now live in a world with $14 trillion in central bank liquidity, which means the current market is neither comparable to 2005 or 2007, the market will do whatever central banks decide it will do, regardless of where the VIX trades.

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