Investing in times of high market volatility makes you more money; here’s how

India VIX, the gauge that signals swings in market volatility, may be a scary indicator, but it has solid correlation with stock returns.

Investment made at a time when VIX is on a high typically made more money relative to a ‘timing-agnostic’ investment approach, shows a study.

As the rapid spread of coronavirus and a marked slowdown in the Indian economy have tested the nerves of equity investors in last one year, India VIX has soared 42 per cent.


Mumbai-based Ashmore Investment Management in a February 28 report said the average alpha generated from putting money to work when VIX is on a high is 262 basis points for fixed income and 234 basis points for equities.

The 30-share Sensex lost some 2,872 points over the past week to close at 38,297 on February 28. Nifty declined 879 points to 11,201 during this period.

Ashmore, a specialist emerging market investment manager, says the first casualty of the coronavirus pandemics may well be emerging markets (EM), but they are also likely to be the greatest winners for those who buy stocks now.

In the above table ‘active’ return refers to the average 12-month return after a spike in VIX, while passive returns refer to the average annualised returns since the inception of the index.

Ashmore said investors should take a ‘chill pill’. “If coronavirus is anything like flu, then emerging markets should end up considerably less impacted than their developed market counterparts due to environmental conditions,” it said.

It also added that hot-headed investors will undoubtedly feel inclined to liquidate, but this would be a mistake because they will crystalize losses that are bound to be reversed in relatively short time.