The last several years have been remarkable for the gains across the major asset classes. A commensurate, albeit lesser-known trend is the fall in volatility generally.
Consider our chart below, which graphs rolling 36-month, annualized standard deviation of monthly equity total returns through December 31, 2006. It’s clear that stock markets overall have become calmer, gentler beasts. The trend has been particularly notable in emerging markets, as per the MSCI Emerging Markets Index. At the end of last year, the benchmark’s volatility weighed in at an annualized 17.6 standard deviation for the past three years, down from more than 30 in 2001.
