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VXN Index Volatility Forecast (23/01/2011)

The last week we predicted a sharp expansion of the VXN Index and effectively that is what happened. The mean reverting feature of volatility index have been respected by the VXN, and admittedly, in a fairly short period of time.

The volatility is now 6.3% (99.9% in annual terms) and even if the curve is still upward sloping there is a high probability that the volatility of the VXN Index will tend to revert to its equilibrium point which is around 4% (63.48% annualised).

The staff of HyperVolatility is therefore bearish on the VXN since a drop of market fluctuations is about to occur and such a phenomenon will indirectly have some side effects on the Nasdaq Index whose decreased volatility rate could favour a recovery in price.

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