What is the Investopedia Anxiety Index?

One of the most recognized portals for finance users in the world is Investopedia, for those who do not know them is a kind of Wikipedia about finance.

One of the most interesting tools provided by the web is the development of Investopedia Anxiety Index.

What is Investopedia Anxiety Index?

This index shows the feeling of investors based on the web behavior of more than 10 million users since 2015. Its operation is very simple, based on keywords. In particular, they use 12 keywords and measure URL visits with the most traffic on these topics.

Once released, they performed a regression with these parameters to get their behavior in previous years, since the information was available on the web.

How is the IAI data interpreted?
The interpretation of the index is very simple: Investopedia

Levels below 100: indicate low levels of intensity
Levels above 100: present high anxiety
The index is also composed of 3 indicators that measure the level of investor anxiety in relation to:

Macroeconomics: measures interest in the global economy, inflation or deflation
Markets: short sales, volatility
Debt and credit: bankruptcy, solvency and bankruptcies
How important are these indicators?
Although it seems that these types of surveys are not very relevant, the high level of data they deal with and the use of big data offers us a very interesting indicator of investor behavior.

Even on the web itself, the high level of correlation between its indicator and VIX is noted, as shown in the image below:

Even one of the creators defends in the video below that this indicator complements VIX as it shows patterns or intentions of investor behavior that VIX itself cannot measure, even advances them.

As the graph above shows at the beginning of the Lehman Brothers crisis, the level of anxiety predicted long before VIX the market’s concern with the economic situation.

What is the profitability of the cash flow and how to interpret EV/EBITDA?

In company analysis, cash flow is particularly important and in relation to a company’s cash flows we can extract the company’s value (Enterprise Value) in relation to its Ebitda. The EV / Ebitda is one of the most used indexes, as well as the profitability of the cash flow, which will determine the profitability of the company based on the income obtained in cash. At the same time, we will also see why EV/Ebitda is important and how it is normally used to make comparisons.

EV / Ebitda (Enterprise Multiple) What is it?

It is the value of the company (Enterprise Value) in relation to its Ebitda (Results before interest, taxes, depreciation and amortization). It is one of the most used proportions.

The Enterprise Value is what you would pay for the company if you wanted to buy it in full. It is calculated by adding to the market value the debt that the company has, since whoever acquires the company will have to pay the debts. The complete formula of Enterprise Value :

Enterprise Value = Market capitalization + Financial Debt + Preferred Shares + Minority Interests + Financial and Operational Leases – Excess Cash – Temporary Financial Investments – Extraordinary Assets.

Ebitda, as we said, are the benefits before interest, taxes, depreciation and amortization. In other words, the benefits must be added to these magnitudes.

The EV / EBITDA is positively correlated with the growth rate in free cash flow (FCF) and is negatively related to the global risk level of the company and the weighted average cost of capital (WACC)

Read too: Four tips for not losing investing with Value strategy

Why is EV / Ebitda useful? Investopedia

When comparing companies with different degrees of leverage, it can be a more faithful relationship.
EBITDA is useful for evaluating capital intensive companies with high levels of depreciation and amortization.
Ebitda is generally positive, although profit per share can be negative.
EV / EBITDA also has several drawbacks, however:
Although it has some disadvantages, we can take into account that if the current (current assets minus current liabilities) is increasing, the EBITDA will exaggerate the cash flows of operations.

The free cash flow takes into account capital expenditures (CapEx) , more related to the Ebitda valuation theory. Ebitda will be representative if capital expenditures are equivalent to depreciation expenses.

Why is VIX called a timor index?

The Cboe Volatility Index (VIX) indicates the level of fear or stress in the stock market – using the S&P 500 Index as a proxy for the broader market – and is now popularized as the «Fear Index» .

What is the Investopedia Anxiety Index?

The Investopedia Anxiety Index (IAI) is a statistical index that measures financial market volatility. It was created in 2007 in response to the implied volatility of the Indian dollar (VIX) and is recognized as a good predictor of future market volatility. The Investopedia Anxiety Index is an experimental index used to measure the level of investor anxiety in financial markets. The index fluctuates over time, depending on the number of trades measured, price changes, trading volumes, etc.

How does the Investopedia Anxiety Index work?

The Investopedia Anxiety Index is based on the amount and type of trading activity on your platform. The index is calculated by monitoring the assets traded and the types and amounts of trades executed on the platform. The index is regularly updated and divided into different quantitative levels. The price of the route corresponds to the price of the different trucks. Uptrends in the market usually result in a bullish price moment. This means that more people are willing to pay higher prices for financial goods.

Why use ?

The Investopedia Anxiety Index provides an effective way to research investment opportunities. Investors and traders can use the index to detect any increase or decrease in volatility in the financial markets. Since the index is frequently updated, investors can gain unique insight into market behavior and get a more accurate assessment of market volatility. This provides them with long-term price movements in the market.

How do you interpret?

The Investopedia Anxiety Index is calculated using a variety of technical indicators, including major price indices, volume, and market trends. Investors can use these indicators to interpret price movements in the financial market. Additionally, the index can also serve as a sentiment indicator to help investors determine what the next move will be for a certain financial asset. This will help them make informed decisions and maximize their return on investment.

conclusion

Finally, the Investopedia Anxiety Index is used to measure financial market volatility. Investors and traders can use the index to find investment opportunities and make informed decisions to maximize investment returns. The Investopedia Anxiety Index can also be a sensitivity indicator to help investors predict price movements. Since the index is regularly updated, it is a valuable tool for making investment decisions.