This is a volatility index, similar to the VIX, but designed specifically to gauge the likelihood of a large selloff (> 2 standard deviations). As I understand the interpretation of the index, when it is high, traders are more concerned about a large selloff in the near future. When it's low, traders do not anticipate a large selloff.
I don't follow the SKEW closely but noticed that it just hit its low of the year. This surprises me as I would have expected it to rise as the market declined in the face of weak economic data over the past few weeks. Any thoughts on how to interpret what this means?
According to that document, there is a correlation between the SKEW and the odds of a large selloff. At current levels, there's about a 6% chance of a >2 standard deviation selloff in the next 30 days, which is on the low end. I'm not sure how much stock to put in this and am curious if anyone here knows more about the SKEW than I do.
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