Volatility Radar : is there anything out there ?

Much has been written recently on the remarkable compression in equity volatility and in particular the VIX, which is generally synonymous with equity vol.

What I find amazing is the sheer breadth and depth of this volatility compression, across markets as demonstrated in the attached chart (as at 18 February 2013, source data: Bloomberg) which looks at a 100 day volatility measure, across equity, commodity indices, credit and precious metals.

VolRadar Feb 2013

Without wishing to state the obvious – a few statistics from the charts jump out :

– Realised volatility in developed market equity is at the same levels it was in mid-2007, in emerging markets you have to go back to the 1990’s to find volatility realising at such low levels

– when it comes to commodity indices, the energy-heavy GSCI index (historical allocation to energy of 60-80%) last experienced these low levels of volatility in early 2007 before the onset of the crisis, the more diversified DJ UBS index (around 30-40% in energy) hasn’t seen such low levels of volatility for a decade

– In High Yield credit the current levels of volatility are also in line with the late-2006 levels before the start of the sub-prime rumblings, while investment grade is the one asset class that has not seen such a dramatic compression in realised volatility recently. while still relatively low historically, current volatility is in line with levels we have seen in the last 2-3 years

– In precious metals, which often have dynamics which mean they move in ways less connected with the other markets studies, the same picture still emerges with volatility back to 2006-2007 levels

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