Despite what historical volatility levels suggest there is a significant structural break in equity markets that is not gauged using standard financial mathematics.
Emotions and intuition should not be part of the professional capital market environment. This much has been pointed out and agreed upon by market participants and academics alike. And yet we were given that mysterious shortcut generating machine by Mother Nature for a purpose. Is not that purpose to protect us from our seemingly rational reasoning?
The analysis involving standard measures is guilty of the most common mistake in finance: using a mathematical expression without defining what it is meant to measure. The true amplitude of index change in a unit of time in the past decade, which volatility apparently fails to capture, is the highest ever recorded in history, or at least for the 140 years of available data.
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