Trader’s Narrative

The following is a guest post by Charles H. Dow Award winner, Wayne Whaley (CTA) of Witter & Lester:

From 1950 through June 10, 2010, the average daily percent change in the S&P 500 cash index has been 0.65%. Below is a chart showing the breakdown of the volatility each year:

Click chart to see a larger version in a new tab:

The most volatile years have a red square and the least volatile a green square. The average for every decade is denoted by the horizontal orange line. Please note that the volatility data for this decade and this year is partial as the year is not over.

Some quick observations:

• 2008’s average daily volatility was 2.6 times the historic average volatility
• Eight of the 10 most volatile years have occurred in the last 13 years
• Seven of the 10 least volatile years have occurred in the two decades before 1970
• Obviously, volatility has increased over the last decade

Does the last decades increase in volatility suggest a permanent change in trading characteristics? I have my own opinion, but I will let you draw your own conclusion before sharing mine with you.

Edit: Babak here, I’ve added the linear regression (grey straight line) to show the “slope” of the change more visibly.