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MARKET INSIGHTS - What market volatilty taught us

At the dawn of what was to become a global pandemic, governments around the globe were forced to enact strict lockdown measures, which lowered companies’ expected cash flows and raised investors’ risk aversion.

The analysis begins with an introduction on volatility: measurement methods, determinants and implications.


After that, a brief but concise explanation of volatility during normal times, that is shown to be low and stable between crises, is outlined. The illustration of various episodes of high volatility, including wars and financial crises, aims at finding common traits and defining which expectations should be made following certain early signals.


Both behavioral panic selling and common behavioral biases are also examined. Insights into volatility index, primarily the VIX, but also into futures, swaps and options are provided, with the illustration of models.


The last paragraph is centered on the COVID-19 Pandemic and its effects on stock market volatility. After the most recent developments of high volatility, namely the actual peak, some conclusions are outlined.

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