So earlier this weekend I posted a blog about VXST and the streak of twenty higher closes for the CBOE Short-Term Volatility Index that comes after a three day weekend. I also noted that VXST has a better chance of being lower on the Friday before a three day weekend than on any other trading day.
I decided to run the same test with VIX and see what sort of impact a three day weekend has on price action for VIX before and after the long weekend. Going into a long weekend (or any weekend actually) VIX has a bit of a headwind due to the nature of the calculation used to determine VIX. The calculation is based on calendar days and when the next two or three days are days that the markets will not be open there is a little downward pressure on VIX. Needless to say it is possibly greater going into three day weekends instead of two day weekends. So, now that I have gotten through that long winded explanation, here is the result – there have been sixty eight three day weekends since January 1, 2004. Of those sixty eight VIX has closed lower on the day forty eight times or about 70% of trading days. On the flip side, about 66% of the first trading days that follow a three day weekend have seen VIX move up. These numbers are not as dramatic as the VXST results, but are significant in that VIX tends to close higher 45% of trading days and lower about 55% of the time.
Since I am really supposed to be talking about what VIX did last week, let’s just say the market was higher and VIX was lower. However, VIX was probably a little lower than it would have been if Friday had not been a holiday.