Volatile markets and how they can make you money

5th January 2012

There is no doubt markets are currently going through a heightened period of volatility but perhaps the chart below will provide you with some comfort. It looks at whether there is any relationship between volatility (as measured by the Vix index) and subsequent equity market returns.

 

The chart highlights that at low, average and slightly elevated levels of volatility, there is no discernible pattern between equity returns and volatility. However, at much higher volatility, when the Vix is 40% or more, a pattern has emerged. It suggests investors tend to make a much better equity-market return after periods of elevated volatility. So why would that be?

Read more…

 

More from Mindful Money:

Equities vs. gilts – Challenge the conventional wisdom

Volatility: looking for the philosopher’s stone

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