When Fear Spikes, Should You Buy?

Research suggests that buying equities when VIX is above 30% has delivered higher average returns historically, but not higher risk-adjusted performance. A Sharpe ratio framework indicates that cutting equity exposure during high-VIX periods modestly outperforms adding exposure, challenging the common tactical strategy of “buying fear.” Implication is a more cautious positioning approach during volatility spikes rather than indiscriminate equity risk-on.

Analysis

Research suggests that buying equities when VIX is above 30% has delivered higher average returns historically, but not higher risk-adjusted performance. A Sharpe ratio framework indicates that cutting equity exposure during high-VIX periods modestly outperforms adding exposure, challenging the common tactical strategy of “buying fear.” Implication is a more cautious positioning approach during volatility spikes rather than indiscriminate equity risk-on.