High Volatility, but not Peak Volatility

The graph above is the S&P 500 on the right axis with a logarithmic scale, and 4-, 6- and 20-day average absolute percentage price change on the the left axis, linear scale. As you can see, high price volatility is associated with bear market bottoms.

In terms of 4- and 6-day volatility, this market ranks third in the last 61 years, behind 1987 and 2008. Wait another three weeks for the 20-day volatility, it could be competitive with 2008 and 1987. 1987 was sharper and shorter than 2008 because there weren’t any systemic risk issues involved, as there are in 2008 and 2011.

Isn’t it fascinating that the volatility level is so high now — what makes this period of time so special compared to the overvaluations of 1987 or the overleverage of 2008? I think it is overleverage again, though valuations are somewhat high.

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About David Merkel 145 Articles

Affiliation: Finacorp Securities

David J. Merkel, CFA, FSA — From 2003-2007, I was a leading commentator at the excellent investment website RealMoney.com (http://www.RealMoney.com). Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and now I write for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I still contribute to RealMoney, but I have scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After one year of operation, I believe I have achieved that.

In 2008, I became the Chief Economist and Director of Research of Finacorp Securities. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm.

Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life.

I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

Visit: The Aleph Blog

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