The Herd Behavior Index

What do the HIX, CIX and Downside HIX measure?

The HIX and the CIX measure the market’s expectation of the short term (1 month) degree of co-movement (i.e herd behavior) between the components of the Dow Jones index. Both measures take values in the interval [0,1], with a ‘larger number’ corresponding to ‘more co-movement of stock prices’. Today’s values of the respective measures are obtained by comparing the current market situation with the situation that would occur in case of a perfect co-movement behavior. A strong co-movement implies that stock prices are moving strongly together, however, these prices can either go up or down. The Downside HIX measures the extent to which stock prices are moving down together.

The HIX and the CIX are model-independent forward looking measures, calculated from observed option price data for the Dow Jones as well as for its components. The HIX compares a market volatility estimate of the Dow Jones index with its perfect co-movement counterpart, whereas the CIX is based on the variance swap rate of the Dow Jones.

The crosses in the following graph represent the observed Dow Jones index call and put options. The dots indicate the price of the corresponding index options, in case all stock prices would exhibit perfect co-movement behavior. The latter index option prices are ‘comonotonic option prices’. There prices are not observed but can be determined from the option prices on the components of the Dow Jones index. A narrowing gap between the two option curves indicates that there is an increasing implied degree of co-movement or herd behavior between the different stocks.

Similar measures can be defined for any stock market index provided there are options traded on the index and on its components.

Recent values of the Dow Jones HIX


HIX values in the period January 2000 – October 2009


2000 2001 2002 2003 2004 2005 2006 2007 2008
HIX Average 0.22179 0.2915 0.3863 0.4283 0.3436 0.2218 0.2946 0.4087 0.4703
HIX Max 0.29221 0.4307 0.2922 0.5843 0.2922 0.2922 0.5843 0.613 0.6941
HIX Min 0.11972 0.1835 0.1197 0.2913 0.1197 0.1197 0.2913 0.2572 0.3371