Low VIX No Contrarian Warning for Stocks, May Boost Returns
• The VIX (volatility index) is not a reliable contrarian indicator for the stock market, as a low VIX this year has coincided with a rising market
• Research shows the stock market tends to perform better when the VIX is low rather than high
• A market-timing model increases equity exposure as the VIX declines, producing better returns for the risk taken
• The model works because lower VIX readings produce higher return-to-volatility ratios
• The bullish potential of a low VIX applies in the short term; the model calls for reducing exposure if the VIX jumps up