Volatility Concentrations Are Bearish?
June 4, 2010 - Volatility Effects
A reader commented and asked:
“The article ‘Volatility is a Bear Market Signal’ by David Schwartz measures volatility not in terms simply of big percentage days, but a cluster of such days within a specified time period (movements in excess of 1% on FTSE on at least 20 of 40 consecutive trading days). The prediction made in 2007 looks to have been well founded, giving the strategy an apparent success rate of 8 out of 9 hits if the author’s data can be trusted. What do you think?”
To check this signal independently, we measure returns at intervals of 5, 10, 21, 63, 126 and 252 trading days after onset of concentrations of days with close-to-close volatility greater than 1% for the S&P 500 Index. Using daily closes of the index for January 1950 through May 2010, we find that: Keep Reading