Is the decline in volatility a major concern
Is the decline in volatility a major concern? This chart shows the VIX index, a guide to expected volatility in the US share market. It is clearly very low and is consistent with the US share market having traded in a relatively narrow rising trend since mid-2012. There hasn't been a 10% or more correction in US shares since mid-2012. In many ways this is a good thing. It is far better than the extreme volatility seen through the GFC and its aftermath. The concern, though, is that periods of low volatility can lead to a false sense of investor security and excessive risk taking. However, the low level of volatility is arguably a rational reaction to the more stable macro-economic environment seen in more recent times. As the 2004-07 period showed, volatility can remain at very low levels for a long time before it runs its course. (VIEW LINK)
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