Volatility Clustering

“Statistics are like bikinis. They show a lot, but never everything.” – Lou Piniella, Cubs Manager

I am always surprised as to the posts readers find most interesting. This post on Volatility Clustering was one of my favorites, but didn’t elicit a single comment. I think it is fairly timely with the pickup in volatility in the stock markets now that we are below the 10-month moving average.

Notice the only market where the volatility is higher when above the moving average – commodities – which makes sense given that commodities are much more likely to spike up due to supply/demand issues. Take a look at a chart of wheat or corn for an example. Volatility for asset classes, on average, is about 25% higher and returns about 60% lower when under the moving average.

Reminds me of the behavioral reasons listed by Lo in this earlier video.


A new book on the way soon from Robert Schiller – The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do about It.


KKR is going public by merging with their listed fund in Amsterdam. Hopefully (albeit unlikely) this will bring some needed attention to the listed hedge fund and private equity fund space.


I don’t use the mean reversion technique I mentioned in an earlier post, but it would buy US Stocks, Foreign Stocks, and REITS in August for a two month hold. I’ll track the performance with SPY/IWR, EFA/EEM, and IYR/RWX. Other particularly awful performers that could see a bounce are:

Financials (XLF)
Netherlands (EWN)
Sweden (EWD)
India (INP)
Infastructure (MG)
Private Equity (PSP)
Foreign Private Equity (PFP)