Governments are Causing Recent Massive Stock Market Volatility

Posted on September 25th, 2011 by admin in Political Economy

Since 1 AUG 2011, equity and commodity markets have been very volatile. The VIX volatility index for the S&P500 has persisted at 40 or so, and the frequent large drawdowns have been dramatic. Since global markets have all exhibited very correlated price behavior, it’s useful to look at the news and see what’s driving such big changes.

This chart shows a daily plot of S&P500 Index prices. For each price, a letter marks the value for the date and you can see the page A1 main headline for that day from the Wall St. Journal in the legend. Since there are so may days shown not all the headlines are readable on this chart. But the most recent headlines, starting at bottom of legend, are visible.

Daily Wall St. Journal Headlines Tag S&P500





Now consider the same chart with the dates and headlines displayed only for the day on which the price changed from the previous day by a magnitude exceeding 3%. This graph  plots the changes. The headlines are labeled as before.

Wall St. Journal Headlines for +/- 3 % S&P 500 Daily price changes







The interesting result is that all the headlines are about government actions that could affect the markets, not economic/market action. It seems that judging politicians and central bankers is the primary investment skill needed now.

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