Just like the broader economy, market volatility moves in cycles. To know how seriously you should take risk scenarios and profit opportunities today, it helps to know where we are in the multi-year volatility cycle. Let’s think about the medium-term conditions for the stabilization of equities and check where were we are in the current market.
First, to understand the idea of cyclical volatility, we only need to look at a long-term chart of volatility. VIX will do. We can characterize a complete volatility cycle in four stages: the large initial shock, smaller aftershocks, a steep decline, and a period of stability.