Fear. Uncertainty. Those are human emotions that many people are feeling these days. It turns out you can quantify fear and uncertainty by looking at the stock market.
Stocks are shares of a business that people can buy on a public market, betting that the business will grow and profit and the shares will be more valuable over time. But share prices also rise and fall based on how people feel about the economic future.
So individual stocks, as well as whole sectors of an industry or the overall market in general, can rise or fall on economic or company reports, politics, geopolitical events, unexpected news and whether investors are optimistic or pessimistic about the future.
When these kinds of changes or reports cause stocks to suddenly and frequently rise and fall, we say the market is “volatile.”
Throughout 2025, the U.S. stock market, which is the biggest in the world, has been pretty volatile. One way to measure it is through the Standard and Poor’s 500 Index, which is a snapshot of 500 major company stocks.
Politics and plunging markets
From mid-February to early April, the S&P 500 index plummeted 19% as U.S. President Donald Trump launched a trade war that raised fears of inflation, a recession, job losses and a swelling national debt.
The U.S. market has largely recovered those losses in response to Trump pausing his tariff wars and lowering tariffs from scary levels. As of 30 June 2025, the stock market was dancing in record high territory.
Robert Whaley, a finance professor at Vanderbilt University and director of its Financial Markets Research Center, developed a way to measure a stock market’s volatility by keeping track of stock options — contracts that gives investors the right, but not an obligation, to buy or sell a stock at a predetermined price at a set future date.
It is popularly known as the “fear index” and goes by the symbol VIX.
The fear index is a measure of how much volatility is expected in the next month. Historically, its long-term average has been 17. During April, it was 40-50. In comparison, the index was at 85 in the COVID-19 market crash of March 2020 and at 89.5 during the global financial crisis of 2008-2009.
Buying and selling on fear
What happens during market volatility? High volatility usually implies higher risk because price movements are less predictable. While some short-term stock traders can make money during market volatility, longer-term buy-and-hold investors might get jittery.
Mutual fund cash holdings were at a 15-year high in March. That means that professional money managers held onto cash and stayed on the sidelines. What do global investors crave? Stability and predictability.
“The VIX as of now (intraday June 30) is at 17 so things are calmer which is surprising given what is happening in Ukraine and Iran,” Whaley said. “It seems the markets have become quite comfortable about it.”
He underscored that the fear index is intended to help institutional investors — such as those who manage pension funds or retirement accounts that many people invest in — predict market volatility over the next 30 days. For people who might not be actively involved in the stock market, all of this still matters.
“It reflects how institutions are feeling about the marketplace,” Whaley said. “An analogy would be if you own a house on the beach and learn a hurricane is coming. How much might insurance cost if you could actually buy it that late?”
Reading the market
Whaley said that young people should develop an intuitive feel of stock market volatility, since it is an expression of nervousness.
“In essence, it’s a fear gauge,” he said. “If people are getting nervous buying put options [that gives investors a right to buy] that drives up put prices. If VIX was at 30-40% institutions are scared to death. Right now at 17%, there’s no concern in the short run.”
Whaley said the index is normally around 15-20%, but a reading below 15% would reflect that investors are complacent.
As for the limitations of the fear index, Whaley said some people read too much into it and some institutions might overpay for VIX options and futures to try to insure their investments against losses.
While the fear index was born on a real-time basis in 1993, Whaley calculated that it would have reached an intraday high of 172 and closed at 156 on October 19, 1987, the date of the global stock market crash known as Black Monday. Whaley said other market earthquakes that caused big percentage drops included the 2008 financial crisis and Trump’s tariffs.
Whaley said viewed in a historical context, the fear index is like any other index — like the Dow Jones Industrial Average — that has a market value. “Indices are useful in terms of their history,” he said. “A barometer of fear. If VIX is higher, figure out what is going on.”
Questions to consider:
1. What type of news might cause fear in a stock market?
2. If there is a lot of uncertainty in a stock market, what do many professional investors do?
3. Can you think of another way to measure how fearful people are about the future?