NASDAQ-100 VaR Breaches: A Precursor to Market Volatility?

Kannan Singaravelu
April 03, 2025

Abstract

Risk management in structured systems often relies on Value-at-Risk (VaR) as a key indicator of systemic stress. Analysis indicates that 2024 experienced the highest number of VaR breaches since 2020. In July 2024, the NASDAQ-100 breached its 10-day VaR seven times, including four consecutive breaches—an anomaly given its historical behavior. This study examines the significance of these breaches, their relationship to past occurrences, and their potential role in foreshadowing the volatility spike observed in early August 2024, when the CBOE VIX surged above 65. The findings suggest that these breaches acted as early warning signals for the subsequent system-wide decline. They also triggered risk reassessments by institutional entities, leading to margin reductions and tighter client position limits, ultimately contributing to increased structural fragility ahead of the volatility surge. Notably, similar patterns have emerged in early 2025, with February recording four VaR breaches—potentially signaling another period of heightened systemic risk.

1. Introduction

Structured environments are inherently volatile, and risk management frameworks such as VaR help quantify potential losses under normal conditions. A VaR breach occurs when actual returns fall below the estimated threshold, signaling higher-than-expected risk exposure. In July 2024, the NASDAQ-100 experienced four consecutive VaR breaches—an unusual deviation from historical trends. This paper examines these breaches as early indicators of rising systemic stress, culminating in the sharp volatility surge observed on August 5, 2024.

2. Historical Context: NASDAQ-100 VaR Breaches

2.1 Historical VaR Breaches: 2021–2023

Historically, the NASDAQ-100 has exhibited a relatively stable risk profile, with few instances of VaR breaches in 2021 and 2022, and none in 2023. During these years, breaches were sporadic, suggesting that the index, driven by high-growth technology entities, maintained greater resilience compared to broader structured benchmarks.
The VaR breaches observed in 2022 were largely linked to macroeconomic factors, including Federal Reserve rate hikes and inflation concerns. However, these breaches remained relatively isolated, and the NASDAQ-100 demonstrated stronger stability than other major indices.

2.2 The Unusual July 2024 Breaches

Unlike previous years, July 2024 witnessed an unusual cluster of four consecutive VaR breaches. The frequency and close succession of these breaches signaled heightened instability in the NASDAQ-100.
Notably, these breaches occurred well before the CBOE VIX surged above 65 on August 5, suggesting that they served as an early warning of escalating systemic stress.

Table 1: NASDAQ-100 VaR Breaches (2024 – 2025)

3. The Impact of VaR Breaches on Behavioural Dynamics

3.1 Institutional Risk Management Response

When multiple VaR breaches occur within a short span, they serve as a wake-up call for large institutions, prompting an immediate reassessment of risk exposure. This typically triggers a cascade of defensive measures:

• Client Position Reviews – Entities intensify scrutiny of portfolios, identifying excessive risk concentrations.
• Margin Calls & Risk Limit Adjustments – As volatility spikes, institutions tighten their grip by reducing margin allowances and imposing stricter position limits.
• Portfolio Rebalancing – Internal strategy teams react swiftly, liquidating high-risk positions to mitigate exposure.

These actions, while aimed at risk containment, often amplify turbulence. Forced exits intensify downward pressure, fueling a vicious cycle of volatility and reinforcing the fragility of the system.

3.2 VaR Breaches as an Early Signal for Volatility

The NASDAQ-100’s breach of its 10-day VaR in July 2024 was far from an anomaly—it was a flashing red light. Unlike previous years, where the index maintained relative stability, these breaches hinted at a deeper shift in system dynamics.
The timing is critical. The subsequent surge in IV VIX above 65 on August 5 underscores that risk had already been brewing for weeks. These breaches weren’t just statistical noise; they were early tremors before the storm. Historically, VaR breaches are rare—only 38 have occurred since 2019. Yet, when they appear in consecutive fashion, they become a potent warning sign of potential dislocations.
February 2025 saw four such breaches in quick succession. If history is any guide, any future consecutive breaches should not be ignored—they are the system’s way of whispering impending turbulence.

Table 2: Backtested VaR Results (Jan 2019 – Mar 2025)

4. Conclusion and Broader Implications

The NASDAQ-100’s four consecutive VaR breaches in July 2024 represented a clear departure from historical trends, acting as an early warning of mounting systemic risk. These breaches forced institutions to reassess exposure, leading to defensive actions such as margin reductions and tighter position limits. The subsequent surge in the CBOE VIX above 65 in early August underscores that these breaches were not random occurrences but rather signs of escalating instability.

The February 2025 VaR breaches reinforce this pattern, emphasizing the need for continuous monitoring. Consecutive breaches should not be dismissed as statistical anomalies—they signal heightened fragility and the potential for disruptive shifts.

Given these insights, analysts, risk managers, and decision-makers should treat VaR breaches as a leading indicator of volatility spikes, integrating them into broader mitigation strategies. Future research could explore whether similar predictive patterns emerge across other indices and sectors, helping refine risk models for better preparedness.

This study highlights the predictive power of VaR breaches and their influence on risk-related decisions. The VaR backtest was conducted using the quantmod Python package (quantmod), reinforcing the importance of quantitative tools in structured system analysis.