Monday, February 11, 2019
Not Your Father's Stock Market
JPMorgan estimates that only roughly 10 percent of US equity trading is now by traditional, “discretionary” traders, as opposed to systematic, rules-based ones, like exchange-traded funds, advisers who make rules-based ETF investments and computer-driven hedge funds. Source: Financial Times, Robin Wigglesworth, June 14, 2017
Stock markets have changed with the invention of:
High frequency trading,
Black box trading, etc., etc.
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When markets are calm, we dial up the stock %
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See the chart below of the weekly S&P 500 index for the past 20 years:
Black line is the S&P 500 index of Large US Companies,
Red line is the VIX index, a measure of volatility – note how volatility varies so much, from calm to turbulent
Green line is the correlation between the S&P 500 index and the VIX index. Note that, during the vast majority of the past 20 years, they are inversely correlated. That is, when volatility goes up, stocks tend to go down, and vice versa – that surely makes the case for Volatility Targeting.
FORWARD THIS TO A FRIEND CONCERNED WITH VOLATILITY