News & Research

Markets recovered in Q4, and volatility fell for many, but predicted volatility ended the year in the top 15% of observations from the past 40 years in the US.

Market returns were negative in Q3, yet volatility fell from the end of Q2. Risk fell when markets rallied, but remained steady as they turned down. We found a number of drivers of the lower risk, which is unexpected. Some style indices’ active risk fell as well. Volatility turned back up in late September,

Most markets fell and risk increased in Q2 and YTD. US (Large and Small Cap) had the most negative returns, but Australia and Canada experienced the largest increases in predicted volatility (although are still at the low end of the risk spectrum).

Most markets fell in Q1, although commodity-dependent indices such as Canada did eke out small gains. Risk was up across the board and is higher than it was a year ago in most indices. US SH risk is in the 87th percentile relative to history.

Last quarter we discussed how markets seem to have decoupled. That has continued in Q4 as risk rose in the US (now among the riskiest markets but just around its long-term median) but was flat or fell in others.

In Q3, risk rose slightly in the US, somewhat more in Emerging Markets, Japan and Australia, and substantially in China and Asia ex-Japan.

Inflation shock boosts Bund yields: Dollar falls over disappointing jobs data—but stocks continue to climb: Lower equity volatility reduces portfolio risk.

Risk fell again across most indices in Q2 – US short horizon risk finally retraced its path back to where it stood before the 2020 crisis. Almost all components of risk contributed to the decline.