Don't Overreact to Market Volatility: Ritholtz Chart

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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Even though you may have heard a lot recently about market complacency, it turns out that periods of low volatility aren't very unusual.

Have a look at the chart below (and click on it for a larger version).

The chart, from Goldman Sachs by way of FT Alphaville, shows that spikes in volatility are quite unusual. Periods of low or falling volatility fill the time between spikes -- like fields of tall grass between occasional redwood trees.

I have no idea what this means for the markets over the next week or month. However, it does suggest that an overemphasis on either the so-called fear index or complacency could be wildly misplaced.

Here's what FT Alphaville, quoting an analysis JPMorgan Chase & Co., wrote:

While the current levels of vol are low they are far from unprecedented -- macro surprises have collapsed and the macro vol increase seen post Lehman has been unwound while monetary surprises clearly peaked during the second half of 2013 but stabilized this year.

Another attempt to make a forecast based on a single variable seems to be falling by the wayside.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Barry L Ritholtz at