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Market's wild volatility has resulted in barely a ripple

RARELY has a sharemarket been so wild and moved so little.

RARELY has a sharemarket been so wild and moved so little.

Over the past three months, there have been wild price swings daily.

Stocks soar when it appears that Europe will manage to work out a rescue plan for Greece. They plunge when it appears the world may be entering a double-dip recession.

But the Standard & Poor's 500-stock index has moved almost nowhere.

An investor who spent the past three months in private contemplation, without any information about what was occurring, could have emerged this week and concluded from the sharemarket that it had been a quiet time for all.

The index closed at 1260.34 on August 3 and was at 1237.90 on Wednesday, for a net decline of 22.44 points, or 1.8 per cent.

During that period, the total move of the index was more than 1392 points, as it rose more than 684 points on good days and fell more than 707 points on bad days. That meant that the index travelled nearly 1370 points more than it had to and that the excess volatility figure was 109 per cent, the highest figure since 2009.

There were several violent swings of excess volatility during the Great Depression, but from 1940 to 1987 the figure never got as high as 100 per cent.

In early 1988, the excess volatility index peaked at 116 per cent, largely because of the October 19, 1987, crash, which caused a one-day drop of more than 20 per cent in the index but proved to have little lasting economic impact.

The next time the index topped 100 per cent was in late 2002, as the market was reaching its lows after the collapse of the technology stock bubble in 2000 and 2001.

Then, in 2008 and 2009, it climbed to new post-Depression peaks as share prices approached a low after the credit crisis led to a deep recession.

Much of the downward volatility of the past three months came on speculation of a new recession.

Moves upward came when economic optimism rose. The high level of excess volatility could signal that the economy's recent slow growth is due to change but it is not clear what that change might be.


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