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Does Your Stock Market Sport a Volatility Index?

23 July 2007 - Features - Editor

Trust Chicago to take the lead in all stock market matters! The current century had not dawned when the VIX was launched in this pioneering metropolis. Though it is expressed in simple percentage terms, the VIX is far from the conventional stock market product to which many investors are accustomed. The VIX is an index of volatility, and allows sophisticated stock market players to trade in general market sentiment, and forecasts of future economic conditions.

The skill, which restricts capabilities to understand indices of volatilities, should not detract from its protective potential for retail investors. The entry of senior citizens in the stock market arena, trying to make comfortable lives in retirement, underscores the universal need for volatility indices. It can be a useful portent of things to come, whether or not everyone backs the forecasts with precious cash.

The proposed SAVI (South Africa Volatility Index) is a thoughtful innovation of the stock market in Johannesburg. SAVI turns investing in the country in to a safer alternative than for most other comparable nations with similar stock market conditions. It is sure to go a long way in assuaging any fears, which investors unfamiliar with South African conditions may have.

SAVI is not a copy of VIX, though it may have drawn inspiration from the U.S. product. The stock market administration of South Africa has thought of a mechanism to reflect its own social and political realities. Daily movements in SAVI are sure to prove invaluable for global investors, who have to move funds across national borders every working day. However, SAVI would be even more useful if all emerging countries had such volatility indices.

Your stock market might be next door to the office or even near your residence. It could also be oceans away, leaving you groping to put bits and pieces of information about local conditions together. The global stock market environment of today requires that all historical movements in traditional financial parameters be tempered with forward-looking estimates. The latter have inevitably to consider political ground realities in countries with uncertain governance. A volatility index is a 21st century stock market imperative.

 


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