Global Finance: Indexes Beckon 'Alpha' Bets --- VIX Creator, Nasdaq Plan Instruments That Aim to Filter Out Broader Market
NEW YORK -- Nasdaq OMX Group Inc. on Monday will introduce new indexes from the creator of the VIX "fear gauge" that will track popular stocks' performance against the broader market.</br></br>The stock exchange tapped a duo that includes Robert Whaley, who developed the CBOE Market Volatility Index, to design the new "Alpha Indexes." With regulators' approval, Nasdaq will offer derivatives to bet on or guard against moves in the new measures -- something Mr. Whaley envisions letting investors screen out even a stock-market crash from the returns of popular holdings like Apple Inc. or Citigroup Inc.</br></br>"The idea is to isolate what I'm focused on and get rid of the market bet," said Mr. Whaley, who is a professor at Vanderbilt University's Owen Graduate School of Management. The indexes, which Mr. Whaley co-developed with university colleague Jacob Sagi, are to be presented this week at the Futures Industry Association's Futures & Options Expo in Chicago. Nasdaq hopes to launch the derivatives built around the indexes early next year.</br></br>With the severe stock-market gyrations of the financial crisis and this year's "flash crash," interest in vehicles to track volatility and "trade" it with complex derivatives have soared. Stock-market correlation also has shot up, pushing investments often used to hedge or diversify into lock-step with major markets.</br></br>The new Nasdaq products are built for investors seeking to combat those problems by isolating the pure "alpha" of a stock, said Eric Noll, Nasdaq OMX Group's executive vice president of transaction services. Alpha is a stock's outperformance relative to a benchmark.