This Week in Emerging Market Volatility – 10/4/2013

This past week was a textbook example of how implied volatility changes in the US stock market can have influence on the volatility of other markets.  Both the iShares MSCI Emerging Markets (EEM – 42.11) and iShares MSCI Brazil Capped (EWZ – 48.53) exchange trade funds were higher last week.  EEM climbed over 2% and EWZ was up over 1%.  The corresponding volatility indexes rose as well with the CBOE Emerging Markets ETF Volatility Index (VXEEM – 26.92) rising 3.34% and the CBOE Brazil ETF Volatility Index (VXEWZ – 24.41) moving by 4.14% over the course of the week.

Those of us that have suffered through the CFA program learned that real estate investment trusts (REITs) generally do not track investing directly in real estate due to a stock market influence.  This year it seem there have been several instances of VXEEM and VXEWZ following what VIX is doing instead of moving in the opposite direction of their underlying markets.  This past week was another one of those examples.