Low volatility

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IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Low volatility

Post by IlliniDave »

Sorry, no detailed analytical link, but I heard on the radio this morning yesterday marked the least volatile day "ever" (i.e., since VIX was established). The country (and the world) certainly does not feel like a less volatile place. Maybe all the uncertainty has driven investors collectively into analysis paralysis.

We've also, I read somewhere, approached/reached a 20 year low in correlation between US equities and ex-US equities (described as possibly a return to "normal"). I don't know why, but I find both of those things surprising by themselves, and somewhat more surprising in concert. Lower volatility and lower correlation existed together at times prior to the tech bubble, and I suppose I just thought those days were gone forever. That illustrates one of the reasons I quit trying to outguess the markets some years ago.

Hopefully this isn't just the calm before the storm. But if it were to persist for a good swath of time along with modestly positive returns, it could slingshot me into retirement with some good forward momentum. I could use a shot of confidence about now.

I'm really not sure what this means, however.

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jennypenny
Posts: 6851
Joined: Sun Jul 03, 2011 2:20 pm

Re: Low volatility

Post by jennypenny »

IlliniDave wrote:
Wed Jul 26, 2017 7:23 am
I'm really not sure what this means, however.
+1

Most of my trader friends are bullish FWIW.

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: Low volatility

Post by Dragline »

It means there's a Minsky Moment coming! Maybe tomorrow! Maybe next week! Maybe next month! Maybe next year! Maybe, err, ok, someday.

Yeah, if you can predict the future with the VIX, you'll be rich. But please let me know when you figure it out. ;-)

The only thing I am wondering if whether the popularity of index funds has anything to do with it and/or algorithmic trading. But I honestly don't see a causal connection. I just hear tahk about such things.

Dream of Freedom
Posts: 753
Joined: Wed Aug 29, 2012 5:58 pm
Location: Nebraska, US

Re: Low volatility

Post by Dream of Freedom »

;) Stocks move down faster than they move up. So low volatility signals that we are in a long term uptrend (we are). Frankly it is more a bullish signal than bearish.

IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Re: Low volatility

Post by IlliniDave »

Dragline, my guess is that index funds are possibly more of a symptom than a cause. Index funds have been out there and fairly popular during past periods of high volatility. What the CBOE guy I heard on the radio said when asked if it was due to index funds, was that the trend is investors moving away from wanting to do a lot of trading which in turn has forced a lot of brokers to move towards more of a "financial advisor" role and providing options geared towards long-term investing (versus the stereotype "hot stock tips" of yore), and among those options would be index funds. In other words it's a shift away from the "day trading" fervor of the mid-90s through mid 2000s towards the strategies that index funds were conceived to facilitate (ETF traders aside). Of course, the 40-year track record of index funds and the principles behind them could be part of the motivation for the shift in attitudes.

I can't comment on algorithmic trading--too sciency and I truly know nothing about it.

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