I put together this chart for my column this week, but it was (correctly) deemed too confusing for Time readers. On the assumption that readers of this blog are a hardier breed, here it is:
The idea was to investigate whether stock market volatility had risen or fallen as professional investors (mutual funds, pension funds, etc.) took over from the part-timers who previously owned most shares. There is, as you can see, no clear trend. The late 1980s seem to have been a high point in volatility. Since then, the one thing I can see is an pretty clear distinction between years-long periods of low volatility and years-long periods of high volatility. I wonder if this might have something to with the rise of more quantitative, “risk-controlled” investing styles that deliver steady and seemingly uncorrelated returns in good times but, as MIT’s Andy Lo has demonstrated, tend to wig out all at the same time. In any case, as I’ve written before, it looks like we’re at the beginning of one of those high-volatility eras.