Arkus Focus January 2016
A new regime
by Niall O'Connor
- After two quiet months, volatility trends were sharply upwards during December. Volatilities ended mostly medium or High relative to their 12-month averages.
- Realised volatility (of Eurostoxx equities over 30 days) rose from 15.2% to 25.2% (from low to High).
- Equity market price moves were large and downwards. Volatility trends were upwards. Sector volatilities ranged from 13-17%, although Energy rose to 30%. All major sectors had medium or High volatilities relative to the last 12 months.
- Sovereign bond price moves were again small during the month. Bond volatilities were up ending at 6-7% (and 0.9% in Japan). Germany and US were High, Japan low.
- FX moves were large, with the euro strengthening by 3-5% vs other major currencies. Volatility trends were sharply upwards: e.g. €/$ up to 13.3%. Volatilities were generally medium or High compared to the last 12 months, with the exception of €/£ at low.
- Option volatility will have been relatively high as volatility of volatility rose sharply and moves in underlying prices were relatively large during the month. Volatility of volatility for the US rose to 173% (High).
- Commodities’ price moves were once again sharply downwards. Volatility moves were also upwards: e.g. Oil up to 41% (medium).
- Real Estate (equity) price moves were strongly downwards. Volatility changes were small though: down to 17% in the US (medium) and up to 20% in Europe (medium), and Japan up to 16%. PE Funds and Hedge Funds prices fell again, with volatilities rising sharply.
Read the full Market Risk Report here.
View the online version of our January Newsletter here.