Finding Meaning in Volatility

July 9, 2008

Yesterday we profiled correlations; today, we update volatility.

In preview, vol is up, which is to say that it’s no longer down, as it was for several years previous. The bear market in volatility ended in late 2006/early 2007, as our chart below reminds. As it happened, the windup in vol’s decline preceded the start of the bear market in equities. If you’re thinking that volatility’s nadir was a clue of things to come, you’re right. In fact, we considered no less in the recent past, including this post from January 2007, when we advised, after a long spell of falling standard deviations: "Higher volatility is probably coming, one day, and history reminds that sometimes higher volatility is forged by falling prices."

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