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1.74 MB
Extraction Summary
2
People
4
Organizations
1
Locations
2
Events
0
Relationships
3
Quotes
Document Information
Type:
Financial research report / market analysis
File Size:
1.74 MB
Summary
This document is page 8 of a 'Global Equity Volatility Insights' report published by Bank of America Merrill Lynch on August 9, 2016. It analyzes the VIX term structure and SPX implied moves in relation to the upcoming 2016 US Presidential election, referencing quotes from President Obama and the potential market impact of a Trump victory. While the document bears a 'HOUSE_OVERSIGHT' Bates stamp, indicating it was part of a document production (likely related to bank records), the content itself is purely financial market analysis and contains no direct mentions of Jeffrey Epstein or his associates.
People (2)
| Name | Role | Context |
|---|---|---|
| Barack Obama | President of the United States |
Quoted regarding the 2016 election being 'not your typical election' at the Democratic National Convention.
|
| Donald Trump | Presidential Candidate |
Mentioned in the context of market speculation regarding a potential election win.
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Organizations (4)
| Name | Type | Context |
|---|---|---|
| Bank of America Merrill Lynch |
Creator of the Global Equity Volatility Insights report.
|
|
| BofA Merrill Lynch Global Research |
Source cited for the data in Charts 13 and 14.
|
|
| Democratic National Convention |
Venue where President Obama made the referenced quote.
|
|
| House Oversight Committee |
Document bears the Bates stamp 'HOUSE_OVERSIGHT_025985'.
|
Timeline (2 events)
2016-08-09
Locations (1)
| Location | Context |
|---|---|
|
Implied context of the US Election and SPX/VIX markets.
|
Key Quotes (3)
"this is not your typical election"Source
HOUSE_OVERSIGHT_025985.jpg
Quote #1
"Using the VIX term structure... we estimate the option markets’ implied move over a single day in the Oct-Nov period (which encompasses the US election on 8-Nov)."Source
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Quote #2
"However, as we have recently argued the debate about whether a Trump win would be good or bad for markets coupled with the inability to exactly pinpoint real risks are likely headwinds to a sizeable market shock."Source
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Quote #3
Full Extracted Text
Complete text extracted from the document (2,727 characters)
Chart 13: The 2016 election move implied by the VIX term structure is, in our estimate*, approx. 1.4%...
---o--- Interpolated Oct future (level where Sep/Oct/Nov Fly = 0)
--- Expected Oct future based on median level of ~1M/2M/3M fly
--- VIX futures (adjusted for holidays)
---o--- Interpolated Oct future (level where Sep/Oct/Nov Fly = 0)
--- Expected Oct future based on median level of ~1M/2M/3M fly
--- VIX futures (adjusted for holidays)
[Graph Y-axis: 14.6 to 18.1]
[Graph Labels: Excess vol vs median levels]
[Graph Annotation: Implied daily move on election day = 1.4% vs. a typical realized "election day" move of 1.5% (see Chart 14)]
[Graph X-axis: Sep16 Oct16 Nov16]
[Graph Labels: Excess vol vs median levels]
[Graph Annotation: Implied daily move on election day = 1.4% vs. a typical realized "election day" move of 1.5% (see Chart 14)]
[Graph X-axis: Sep16 Oct16 Nov16]
Source: BofA Merrill Lynch Global Research. Daily data from 2-Jun-09 to 5-Aug-16. *Day count adjustment = we adjust the VIX futures curve to reflect the Trade-Day/252 day-count convention and use SQRT ((30/365*252/T)) as the adjustment factor to convert to the common day-count convention used in variance swaps. Term-structure adjustment = we add the median level of the day-count adjusted generic 1m/2m/3m fly (i.e. -0.5x Sep fut +1xOct fut -0.5x Nov fut) to take into account the usual VIX term structure.
Using the VIX term structure in the Sep/Oct/Nov buckets and adjusting for term structure/day convention (see footnote to Chart 13), we estimate the option markets’ implied move over a single day in the Oct-Nov period (which encompasses the US election on 8-Nov).
Our estimated implied move is 1.4% which is notably very close to the typical 1-day post-election day SPX realized move over past election cycles (1.5% since 1928) (see Chart 14).
Importantly, there is a larger-than-typical variation in the distribution of all daily post-election SPX returns (34.0 vol pts vs. 18.4 vol pts for daily SPX returns since Jan-1928), with the largest and the fourth largest daily post-election SPX returns since 1928 occurring in the last two election cycles alone (see Chart 14).
Chart 14: ...which is notably very close to the typical SPX daily realized move post-elections since 1928
[Graph Y-axis: 0.0% to 6.0%]
[Graph Annotation: Implied move around 2016 election day (see Chart 13)]
[Graph X-axis: Years 6-Nov-28 to 8-Nov-16]
Abs. post election day SPX realized move --- Average from 1928 to 2012
[Graph Y-axis: 0.0% to 6.0%]
[Graph Annotation: Implied move around 2016 election day (see Chart 13)]
[Graph X-axis: Years 6-Nov-28 to 8-Nov-16]
Abs. post election day SPX realized move --- Average from 1928 to 2012
Source: BofA Merrill Lynch Global Research. Data from Nov-28 to Aug-16.
Hence, investors who believe this is not your typical election (to quote President Obama at the latest Democratic National Convention) may still find that option markets are currently pricing too little of a move.
However, as we have recently argued the debate about whether a Trump win would be good or bad for markets coupled with the inability to exactly pinpoint real risks are likely headwinds to a sizeable market shock.
8 Global Equity Volatility Insights | 09 August 2016
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_025985
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_025985
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