Assessing the VlX's lmpact on SPY Returns in Response to the Federal Reserve's 2022 Rate Hike
DOI:
https://doi.org/10.54097/4wa3zr19Keywords:
VIX, S&P 500, return rate, interest rate.Abstract
This study examines the relationship between the CBOE Volatility Index (VIX) and the returns of the SPDR S&P 500 ETF (SPY) before and after the Federal Reserve's first interest rate hike in 2022. The analysis covers an eight-month period, centered on the date of interest rate changes. The reason to use this period because it is the first hike after the pandemic. A time series approach is used, constructing multi-linear regressions to evaluate the pre-hike and post-hike periods. The pre-hike model did not find any significant predictors, suggesting that market dynamics and the role of VIX were not aligned with SPY returns. However, after the interest rate hike, the VIX rate became significant indicators, reflecting the market's increased sensitivity due to the new interest rate environment. This transformation highlights the crucial role of the VIX as a gauge of market sentiment and risk perception in response to significant monetary policy actions.
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