India VIX overstated the Nifty's coming volatility on 79.7% of sessions since 2014

By Strota Newsroom · 2026-10-23 · How Strota reports

India VIX, the number traders quote as the market's fear gauge, ran hot on four sessions in five. Strota's study lined up every VIX reading since 2014 against the Nifty volatility that actually arrived over the following month, and on 79.7% of 3,040 sessions the gauge had promised more movement than the index went on to deliver. The average overshoot was 2.5 points. Put plainly, whoever bought Nifty options was usually paying for turbulence that never showed up.

That does not make VIX a broken instrument. Sorted into bands, it put quiet and stormy stretches in the right order every time: each step up in the reading was followed by a step up in realised volatility. The gauge carries an upward bias, yet it still ranks risk correctly. What it failed to do, as the study shows further down, was flag the single worst month in the sample before it began.

The test itself is simple. Strota took daily closing levels for India VIX and the Nifty 50 from NSE's end-of-day index data, covering 14 May 2014 to 19 October 2026. For every session followed by at least 21 more trading sessions, it measured two things over that forward window: how volatile the Nifty really was, converted to the same annualised percentage terms VIX uses, and how far the index rose or fell. Each session was then filed into a band according to where VIX closed that day.

The bands tell a tidy story. When VIX sat below 12, which happened on 413 sessions or 13.6% of the sample, the volatility that followed came in at 9.2. The 12 to 15 band, with 1,034 sessions, was followed by realised volatility of 12.1. Readings from 15 to 20 were the most common of all, covering 1,095 sessions, and preceded 14.4. The 20 to 25 band, with 358 sessions, led to 18.9, and the rare readings of 25 and above, just 140 sessions or 4.6% of the total, preceded 27.4. Across every session the figure was 14.0.

Why would the gauge sit persistently above reality? Because VIX is built from option prices, and options are insurance. A household pays a premium on its fire policy that exceeds what it expects to claim in an ordinary year, and the insurer keeps the difference as payment for carrying the risk of a disaster. Option sellers on the Nifty play the insurer. The gap between implied and delivered volatility is what researchers call the volatility risk premium, and this study measures it directly from the buyer's side of the trade.

The forward returns are where the data gets seductive. After VIX closed at 25 or higher, the Nifty was up 21 sessions later 87.1% of the time, with an average gain of 5.24%. Compare that with all sessions combined, where the index finished the window higher 61.9% of the time and gained 0.90% on average. The 20 to 25 band also looked generous at 70.7% up and 2.36% on average, while the 12 to 15 band barely moved at 0.06%. Read naively, fear looks like the best moment the market ever offered.

Strota's own study takes that reading apart. Of the 140 sessions with VIX at 25 or more, 90 fall in 2020, in the rebound after the Covid crash. Most of the remainder cluster in May 2019, early 2022 and March-April 2026. Because each session's forward window overlaps heavily with its neighbours, those high-fear rows are really a handful of market recoveries counted again and again. They are not 140 separate experiments, and the 87.1% hit rate should be read as a description of a few episodes rather than a law.

The most sobering line in the results runs the other way. The worst 21-session stretch in the whole sample, a fall of 37.2%, began on 19 February 2020, a day when VIX stood at just 14.02. That session sits in the ordinary 12 to 15 band, alongside more than a thousand unremarkable days. A calm gauge gave no hint of the crash that was weeks away. Even the quietest band, below 12, contained a forward window that lost 10.8%, and every band from 15 upward had a worst outcome deeper than 25%.

So two findings survive and one does not. VIX overstated the volatility that followed on most days, and it sorted calm periods from turbulent ones in the right order. The apparent edge from stepping in after high readings does not survive scrutiny, because it rests on very few independent episodes, and the low readings offered no protection against a sudden collapse.

The study flags its own limits. VIX looks 30 calendar days ahead, and 21 trading sessions is the nearest practical match rather than an exact one. Overlapping windows make every forward-return row far less independent than its session count implies. And the returns are price moves alone, with no dividends and no trading costs taken out.

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