The equity market question of the hour is ‘When will U. S. stock market volatility return?’
History tells us this is purely a question of ‘When and why’, not ‘if’. A look back to 1990 – the starting point of the modern CBOE VIX Index – shows that domestic stock market volatility goes through distinctly pendulum-like movements that takes years to develop. The daily VIX can run annual averages below 15, as it did from February 1993 – September 1996 (43 months), February 2005 – October 2007 (32 months), and August 2013 to July 2015 (23 months). Once the annual VIX average crosses 15 to the upside (as it did on July 13, 2015), it typically spends years above this level and can average 20 for much of that time.
So for all the chatter about low actual/projected volatility at the moment, that’s where we are now. The pendulum is swinging, albeit slowly, back to higher volatility. That explains the ‘When’: it is already happening. As for the ‘Why’… We’ll find out soon enough.
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This post was published at Zero Hedge on Sep 11, 2016.