Posts

A Survey of Wartime Volatility

This (US) holiday weekend brings headlines from North Korea – the sabers have been rattled and markets are on edge – so we decided to put together a long dated history of volatility in relation to historical events for you to ponder.

A Brief History of Volatility

WARNING: READ THE METHODOLOGY CAREFULLY. THE VOLATILITY SHOWN BELOW IS NOT ANALOGOUS TO TRADABLE SECURITIES. The VIX index, started in 1993, is shown in turquoise for comparison. “The market can stay irrational longer than you can stay solvent.”
HistVol
The data above is based off of Robert Shiller’s monthly analysis of S&P returns. It’s the annualized (realized) volatility of the monthly data (and therefore does not incorporate the severity of single day events). Recessions are highlighted in red and selected wars are highlighted in green. Historical dates are marked with dotted lines and labeled.

As you can see realized vol spikes much more dramatically during economic crises than wartime events (perhaps an obvious observation, but an interesting one to keep in mind in the given environment). That being said, volatility can be low after a dramatic, wealth destroying sell offs, so here are the YoY returns:
HistReturns
Something to ponder. Thoughts and feedback are always welcome. Enjoy the rest of the holiday.