Volatility no-smile

OK, so I don't ACTUALLY know how all this works in terms of linking to other blogs etc (especially if, confusingly, the blog is referring to another blog) but I read this morning a good little piece from Barry Ritholtz over at The Big Picture with a comment on global equity market volatility quoting an article (and lifting some neat NYT graphics... BTW am I allowed to put those graphics into my blog too?) from Floyd Norris (though not from his own blog.)

NYT: "In Asia, where markets have long been more volatile than in either Europe or America, the moves were even more startling. The Hang Seng index in Hong Kong gained 10.7 percent on one day, and lost 8.7 percent on another. In India, the Sensex index fell 7.4 percent on its worst day in the quarter, even worse than the 7.2 percent drop in the Shanghai composite in China. But the Chinese index did rise 8.1 percent on its best day."

A surprise for some of his readers, perhaps, that our markets out here have been a wild and frequently rather painful ride!


From my perspective, just looking at the broad Asian (ex-Japan) market index over the last 3 months, the cumulative daily index changes YTD by the end of today will be something like 95%. That seems like a huge amount (though I have yet to get some office flunky to run it over a longer history) - and ignores the wilder intraday swings, far less individual markets, indices and stocks. IN other words... if you'd been smart (!) and on the right side of the regional trade every day this year you could have DOUBLED your money (or more, with leverage) OR been pretty much wiped out.(a little bit more likely...!) Of course, you could've been saved by your friendly neighbourhood prime broker pulling your lines from you before you got there...

So what to do? Stay invested, position neutral(-ish) and play small. Really small.