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Tim Edwards

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Investors risk complacency as volatility remains surprisingly low, says S&P DJI

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US equity volatility, both realised and implied, continues to bump along at depressed levels despite an environment that would appear to harbour significant risk, according to Tim Edwards, senior director, index investment strategy at S&P Dow Jones Indices (S&P DJI).

The S&P DJI January/February Risk & Volatility Dashboard shows that the VIX is down at 11.97, the highest level of volatility in February so far, but well below the long-term average.
 
Edwards says: “It is now 10 weeks and counting since the S&P 500 moved by more than one per cent in a single trading day, which is the longest streak since the summer of 2014.
 
“It is a remarkable time. Following a week in which both US and global equity indices breached all-time highs, the economic measurements of volatility show very few visible signs of distress in the market.”
 
Every one of S&P DJI’s volatility measures has declined since its last report, and only US interest rate volatility currently remains above the trailing 200-day average. The largest decline (in percentage terms) was in euro volatility, which has been steadily falling since the New Year. European equity volatility fell in tandem, and last night’s close of 14.68 for the VSTOXX Index was the lowest in more than two years.
 
In an environment that would otherwise seem to harbour significant political risks, S&P DJI says that stronger than usual diversification effects have been dampening the market’s swings. The average realised volatility among S&P 500 stocks remains at moderate levels, but correlation among stocks has been unusually low.

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