investors are unusually nervous about tuesday<u+2019>s election, but markets have been unusually calm. it<u+2019>s a situation that, one way or the other, will rapidly resolve itself. up until the news that the federal bureau of investigation had resumed its scrutiny of hillary clinton, investors were pretty sure that mrs. clinton would win. since then, perceptions have changed. betting-market odds, which tend to mirror financial market perceptions, still favor mrs. clinton but give donald trump a better chance of winning. as the polls have shifted, investors have hedged the possibility of a trump victory by bidding up the price of options used to hedge against a stock market downturn. the chicago board options exchange volatility index, or vix, has risen to 22.1 from 15.4 before the fbi news came. that is as high as the so-called fear gauge has been since the immediate aftermath of the u.k.<u+2019>s brexit vote. such a jump in the vix is extremely rare for a period when the stock market has been pretty calm. here<u+2019>s why: technically, the vix measures investor expectations of upcoming volatility in the s&p 500. in reality, the vix is usually just a measure of how volatile the stock market has been. the correlation between the vix and the s&p 500<u+2019>s daily price swings over the past 30 trading days<u+2014>what<u+2019>s known as realized volatility<u+2014>tends to be strong. over the past week, the spread between the vix and a realized volatility index constructed by the wall street journal has grown to its widest since a brief plunge in stocks roiled markets in august 2015. in other words, the vix is actually behaving as it is supposed to, as an indication that investors are betting on future volatility. either the market or the vix is right, and the gap between them will close quickly following the election. there are two ways that can happen. the market can tumble, meaning realized volatility jumps to meet the vix. the other is the market stays calm and the vix falls back in line. in that scenario, the stock market would be pushing higher. what a victory for mrs. clinton or mr. trump would mean for the stock market over the long run is, of course, something that investors don<u+2019>t really know. but for now, their chips are stacked around the table, and the dice are about to roll. write to justin lahart at justin.lahart@wsj.com
investors get election jitters - wsj
justin lahart