Wall Street’s “fear index” is designed to reflect anxiety in the markets, but Goldman Sachs analysts say options prices show this meter's recent readings are incorrect. The CBOE Volatility Index, or the VIX, measures expected volatility in the markets in the next 30 days. When this index inches high, it means investors are nervous about the future of the market. When it reads low, their anxiety is said to be more muted.

But lately, as the S&P 500 Index has endured significant gyrations, the VIX is near 13, its lowest since a spike in January and well below its historic average of 19.5. And that reading is not correct, according to Goldman.

“The VIX is in the 13’s, yet economic data are consistent with a VIX over 15, and its normal relationship with realized volatility would put it above 18,” Goldman analysts Rocky Fishman and John Marshall wrote in a note, MarketWatch reported.

The VIX remained at suppressed levels last year as the recent bull market, now near its ninth year, drove the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite Index to record new heights. But VIX levels spiked in January and higher in February amid uncertainty in the markets.

The Investopedia Anxiety Index (IAI) is currently hovering around 98.27 and reflects overall low anxiety levels as well. The IAI is constructed by analyzing which topics generate the most reader interest at a given time and comparing that with actual events in the financial markets. It breaks down investor anxiety into three distinct categories – 1) macroeconomic; 2) market; and 3) debit and credit. Tt is important to note that the IAI's current market anxiety is high at 106.11.

Source: FactSet

Is the VIX Losing Reliability ?

The most important use of the VIX is to assess the perception of market players and it stands to lose its relevance if it is not accurate. This Goldman analysis joins a growing chorus of questions about the reliability and flaws of the index. 

One of the most recent examples was the sell-off in February. Some products trading the VIX, such as Credit Suisse's VelocityShares Daily Inverse VIX Short-Term ETN (XIV) that fell 92.6% in a single session, were forced to liquidate on account of huge losses.

In the aftermath of that sell-off came the allegations of manipulation of the VIX. A law firm alleged that some traders were influencing the VIX which could cost investors close to $2 billion a year. (See more: Is Someone Manipulating the VIX?)

These are serious allegations and CBOE's president and chief operating officer Chris Concannon admitted that they have 'affected the willingness of trading firms to participate during the auction', the Wall Street Journal reported last month.

In a separate note reported by CNBC, Goldman Sachs estimates that VIX futures accounted for 12% of CBOE's revenue for last year and 40% of its revenue growth between 2015 and 2017. Not only can these questions cast a shadow on the accuracy of VIX and hurt the broader markets but they also have significant implications for CBOE itself.