January 08, 2019

Market Volatility Returns from Vacation

Mark Shore

Mark Shore
Chief Research Officer/Shore Capital Research LLC

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Just when you thought it was safe to be in the capital markets; especially the stock market, and stocks were a one-way ticket north in 2017, volatility, a proxy for risk, reappeared in early 2018. By definition, volatility (standard deviation) measures how much dispersion there is above and below the return distribution’s mean. Therefore volatility occurs on the upside as well as on the downside. I’ve often discussed how volatility can be parsed between positive and negative volatility. The positive volatility is derived from the positive returns.

The negative volatility is derived from the negative returns. Therefore, it’s not necessarily how large or small the standard deviation is as a proxy for risk, but more importantly to know if the volatility is derived more from gains or losses. Or if the volatility is above or below a minimum acceptable rate (Roy 1952*; Sortino & van der Meer 1991** ). 

In 2017 when the stock market was rallying, many investors were probably not too concerned about READ MORE

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