Saturday, October 12, 2013

What history says about volatility and the debt ceiling crisis

Democrats and Republicans have been fighting over budgets and related matters since before any of us were born and while the debate has been heated at times, only recently has the credit of U.S. debt been called into question as a result.

During the impasse that led to the government shutdowns of November 14-19, 1995 and December 16, 1995-January 6, 1996, for instance, there was nary a whiff of panic in the air, as the VIX never made it above 15 and spent a good portion of the shutdown in the 10s.

The last three instances of party budget squabbling have been much different than the Clinton-era budgetary battles. And one only has to watch the trajectory of the VIX during these battles to get a sense of the uncertainty, anxiety, and risk that was priced into SPX options during the period...

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