Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace

The GM strike could be almost over

Oct 17, 2019

Latest Episodes

Download
HTML Embed
HTML EMBED
Click to Copy
This Is Uncomfortable
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy

How Merriam-Webster “measures” volatility vs. the VIX

Janet Nguyen Jan 11, 2019
Share Now on:
Janet Nguyen/Marketplace

The stock market had a rough 2018, plunging and rising hundreds of points at various times in the year. 

We know there’s chaos in the markets because we read the panicked headlines about hundred-point plunges and see the dips on a big line graph.

But there’s a very real way of quantifying whether there’s too much fear or optimism in the markets. It’s appropriately named the Volatility Index (VIX), and it measures how much volatility investors expect over the next 30 days based on the real-time prices of options on the S&P 500.

The index was developed by Robert Whaley, now a finance professor at Vanderbilt University, and was launched by the Chicago Board Options Exchange back in 1993.

Last year, the VIX saw a 157 percent increase in market volatility. Volatility notably spiked in February, and started climbing up in October throughout the rest of the year.

Generally, some consider values less than 20 on the VIX scale as associated with less volatile times in the market, while values greater than 30 are associated with a large amount of volatility.

However, Whaley said that it really depends: “The market is always volatile. Whether the VIX is high or not can only be gauged on past experience.”

 

While people in the financial world may like consulting the VIX to determine what the expectation for market volatility is, the rest of us like to use the dictionary to determine what volatility *is*. 

Enter: Merriam-Webster.

Peter Sokolowski, editor at large of the dictionary company, said volatility increased 253 percent in 2018 compared to 2017. That is, in terms of the number of searches.

Prominent increases throughout the year were associated with dips in the stock market. On Feb. 6, search results for the word “volatility” increased 180 percent, which is calculated based on the average of the past four weeks. The previous day, the Dow plunged 1,175 points.

Economic and political strife also roiled Turkey last August, shaking world markets and pushing down stock indices. On Aug 16., searches for the word “volatile” increased 445 percent.  

There were also search spikes in October and December, which are months when we saw big stock market declines.

Today, volatility is used most commonly in a financial or economic context, according to Sokolowski. “Volatile” was often used in the 19th century, while “volatility” starting become more en vogue after 1980. 

On Merriam-Webster’s own site, its first entry for volatile is: “characterized by or subject to rapid or unexpected change” with the example being “a volatile market.”

“We did our own research, and we found that, referring to markets, we can go back into the 19th century, all the way to 1858,” Sokolowski said.  

That, by the way, is when the first-recorded recession happened in the U.S., based on National Bureau of Economic Research data.

But despite the association “volatile” and “volatility” have with Wall Street, Sokolowski explained that the word volatile actually comes from the French verb “voler.” To fly.

And in a 1755 dictionary from the English author Samuel Johnson, his definition for the word vo’latile (the old French term for the word volatile) is a “winged animal.”  

“Essentially poultry. So birds, pheasants and pigeons, which included chickens. And that is what it originally meant in English,” Sokolowski noted.

But in a 1934 edition of Webster’s dictionary, one definition describes it as being “lively,” “airy,” “changeable” or “fickle.” It includes an example from “Gulliver’s Travels” author Jonathan Swift, who refers to another person “as giddy and volatile as ever,” Sokolowski added.

“I just think it’s a wonderful example of language change. That the word went from from flight to flighty to changeable. And I think it’s notable that when we say volatile markets, that is not a value judgment at all,” Sokolowski said, although he added that one could argue, of course, that markets are not rational. “It went from the concrete to the metaphor. It went from things that fly, to things that change quickly and often without predictability. And I think that’s the interesting, poetic thing to see.” 

If you’re a member of your local public radio station, we thank you — because your support helps those stations keep programs like Marketplace on the air.  But for Marketplace to continue to grow, we need additional investment from those who care most about what we do: superfans like you.

Your donation — as little as $5 — helps us create more content that matters to you and your community, and to reach more people where they are – whether that’s radio, podcasts or online.

When you contribute directly to Marketplace, you become a partner in that mission: someone who understands that when we all get smarter, everybody wins.

Check Your Balance ™️
Check Your Balance ™️
Personal finance from Marketplace. Where the economy, your personal life and money meet.

Thank you to all the donors who made our fall drive a success!

It’s Investors like you that keep Marketplace going strong!