Fresh Evidence for 2015 Volatility Truthers

What 2015 volatility has in common with 1992 and 2001

by Adam Warner

Published on Jun 10, 2015 at 7:30 AM
Updated on Jun 24, 2020 at 10:16 AM

I feel like I spend every other day disabusing anyone who listens to me of the notion that we're in volatile times. Unfortunately (on this topic at least), I would guess those who scream "VOLATILITY!!!!" the loudest reach about 100,000 times the audience. 

But there's hope! I bring you this, from ValueWalk 

They graph the day-over-day moves in the CBOE Volatility Index (VIX) for each calendar year back to 1991, and plot them all on one graph. And it's one big jumble. But then in the next graph they highlight 2015 and, believe it or not…

"Interestingly, 2015 is close to the all-time low in lessened volatility. 

"The only other years lower than 2015 (at the time of writing) -- 1992 and 2001." 

And there you have it. Now, the finding is a little odd in that implied volatility was elevated in early 2001, whereas it was muted in 1992. 

And the most important question, of course, is whether it meant anything for the markets. Well. 

"Overall, right about this time in 1992, things went south in a marginal manner.  The S&P 500 traded in a fairly narrow range, and then experienced strength in November/December to end the year +5%. 

"In orange [on his graph] is the 2001 experience.  Interestingly, as with the 1992 experience, right about now the market went south.  The S&P 500 dropped about 25% over the next four months before gaining some of the lost value back later in the year." 

Thus, there's not much predictive value in this. We're only talking a sample size of two to begin with, so I'd say there's no chance to find anything predictive anyway. But the fact that it was two such diametrically opposite results certainly doesn't help. 

And I could make the case that there are similarities to both. We're at low absolute volatility levels like in 1992. And then, as now, we were several years into a steady rally. Also similar, that rally had stalled a bit; 1991 was the weakest market year for what turned out to be about a 13-year stretch. 

On the other hand, if you're a "Bubble-ist" you could say we look like 2001. Hot IPOs, pockets of booming tech, et. al.

So who knows? I just love the fact that someone's pointing out that we're actually not that volatile! 

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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