Kriti Gupta – Bloomberg/Newsroom
More volatility begets more volume — at least that’s the theory. When it doesn’t, the volatility is amplified. That’s what’s been happening in the stock market. Today’s Chart of the Day looks at equity volume (turnover) going back a year, which has risen in tandem with volatility and spiked even more year-to-date. A lot of that is tied to the war in Ukraine, and higher commodity prices as a consequence.
When the VIX has crossed 30, volume has traditionally jumped as well. But this time, as the VIX stays above the 30 level (a post-war norm), volume remains subdued from the previous levels. For investors that means there isn’t enough liquidity to keep up with the volatility, discouraging any dip buying.
That makes the recent equities moves look like drastic panic selling, when in fact it’s simply buyers not willing to participate in the market. Even retail traders, who were largely responsible for the mid-March bounce back, have joined institutional investors on the sidelines. Instead, “big money” is operating through the options market to hedge rather than outright sell. And when liquidity is low and volatility is high, the stage is set for technicals to drive the market as they did in today’s stock market session.
