A study was recently conducted by Bernstein Research looking at themes involving volatility extracted from the last 119 years of financial market history. Below are some of the findings from their study…
Volatility and Economic Growth Aren’t Tied
The strength or weakness of the economy has not dictated the severity of the response experienced in the volatility market. The research compared the moves during the Great Depression and the GFC in ’08. Scott Gamm of Yahoo noted the following quote, “The worst equity volatility is about banking stability, liquidity, panic, forced selling – not simply the fundamentals of the economy that were that much worse in the Depression era.”
Geopolitics Doesn’t Guarantee High Volatility
Looking at the time period that includes WWII and the Vietnam War, Bernstein researchers found that volatility remained subdued even though there was a global stress taking place during that time. Carlsson-Szlezak notes, “As disruptive as the wars during that era were, investors could count on a healthy banking system with low leverage and a stable foreign exchange rate ushered in by the Bretton Woods system.”
The Relationship Between Inflation and Volatility is Weak
With a review of the high inflation era of the late 60s through early 90s, equity volatility averaged just 13% as noted by Gamm. “The ‘bad macro’ era of the 70s and 80s is offset by a healthier (but weakening – e.g. 1987 [stock market crash]) financial ecosystem.”
3 truths about stock market volatility (Yahoo Finance)
Bernstein studied 119 years of history (Business Insider)
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