Lunar Tides, The VIX® and Volatility

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This is part 1 of a two-part series on analogies used in investment management. Analogies play an important role as heuristics to aid in discovery and comprehension. The problem with many analogies is that they are shopworn, stale and tired tropes. I will lay the intellectual groundwork for a novel financial analogy by citing Sir Isaac Newton.1 Part 2 concludes by explaining how the VIX® Index and volatility revert to the mean and why there is a variance risk premium.

VIX and VOL figures of speech

“Never use a metaphor, simile or other figure of speech which you are used to seeing in print.”
-- George Orwell (Pen name for Eric Arthur Blair) Politics and the English Language (1946)

Analogies are used in wide-ranging fields from chemistry to artificial intelligence to finance. Analogies and analogical reasoning illuminate similarities between systems.

Financial advisors and investors demand novelty as the cost of attention. Given near-term outlooks on stock market volatility, a genuinely original analogy is Moon : tides : : VIX : volatility