A closely-watched index that measures market volatility is on the rise, suggesting fear is gripping markets and a selloff is brewing, said Steven Brice, chief investment strategist at Standard Chartered Wealth Management Group.

The Chicago Board Options Exchange’s Volatility Index (VIX) has risen more than 20 percent from Aug. 17, closing on Tuesday at 16.35.

“Historically, when you get the VIX at these levels there is usually a pull-back of around 10 to 15 percent (in stock markets),” Brice told CNBC, adding the selloff may not be as intense as in the past.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

“We think it [the pullback] will be lesser this time because Europe and China are likely to respond and this will limit the downside,” Brice added, referring to expected monetary and fiscal stimulus measures from the eurozone and China.

The European Central Bank (ECB) is reportedly planning to buy sovereign bonds from troubled countries like Spain to lower borrowing costs there, while China has said it cannot rule out cutting interest rates and banking reserve requirements to jolt its economy.

The Federal Reserve has also said it cannot rule out stimulating the U.S. economy either, which would further support stock prices.

“We would say a 5 to 10 percent (stock market) correction is more likely,” said Brice.

“The risk is that we don’t get (Federal Reserve Chairman) Bernanke signaling something coming through and the ECB disappoints with the timing of any measures.”

Fed Chairman Ben Bernanke is due to open the Fed’s annual Jackson Hole, Wyo., symposium later this week and markets are on edge, as Bernanke has used the meeting in the past to announce monetary stimulus measures, namely a second round of quantitative easing (QE), under which the Fed buys bonds from banks, pumping the economy full of liquidity to drive down borrowing costs and spur recovery.

Stocks rise as a side effect to such policy.

A first round of QE saw the Fed buy $1.7 trillion mortgage-backed securities from banks just after the 2008 financial crisis, while a second round involved purchases of $600 billion in Treasuries, which wrapped up in June of 2011.

Some Fed officials say the time has come for an open-ended round of bond purchases, meaning the Fed should intervene for as long as it takes and not announce a fixed amount of assets it plans to purchase from financial institutions.

Without more accommodative monetary policy, the unemployment rate will hover around current levels of 8.3 percent, said Chicago Federal Reserve Bank President Charles Evans.

“I don’t think we should be in a mode where we are waiting to see what the next few data releases bring,” Evans told a seminar at the Hong Kong Bankers Club, according to Reuters.

“We are well past the threshold for additional action; we should take that action now.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible