Extreme VIX: Regime Shifts and Return Predictability

Summary

The episode examines research on extreme VIX spikes (VIX > 45) and their predictive power for equity returns. Using U.S. data from 2008‑2025, the authors find that such spikes generate significant positive returns over a three‑month horizon, offering a contrarian signal, while one‑year predictability relies more on continuous volatility measures. Logistic regression confirms these effects even after controlling for valuation, credit spreads, PMI, and sentiment, and the study shows that extreme volatility regimes can be forecasted using valuation, sentiment, and medium‑term volatility indicators.