Market volatility slightly dipped in the second half of 2012, but was rather constant throughout the year and considerably less than in 2011, according to a report from Investment Technology Group Inc.
Still, trading costs were up slightly, resulting in a significant increase in the costs per unit of volatility.
The annualized average volatility of stocks in the studied indexes was an average 18% for the year and 17% in the second half, significantly down from 31% in the second half of 2011. (Volatility in the report is the annualized percentage that a given stock is capable of rising or falling in a given day.)
The broadly traded equity indexes measured by ITG for the report are the Standard & Poor's 500, Russell 2000, MSCI World and MSCI Emerging Markets.
“Between the first half and second half of the year, we didn't see much change in terms of volatility, trade costs, spreads and commission,” said Jacqueline King, New York-based vice president, analytics, at ITG in New York. “It was relatively calm this year.”
The average annualized volatility decreased for all four indexes in the second half of the year — S&P by two percentage points to 24%, MSCI World by one point to 26%, Russell 2000 by seven points to 36% and MSCI Emerging Markets by three percentage points to 31%.
There were two spikes in volatility during the year. On June 1, the VIX index peaked at 27%, triggered by European economic news, disappointing U.S. job numbers and slowing growth in China. And on Dec. 28, volatility spiked to 22%, fueled by fiscal cliff fears.
The average trading costs among the four indexes saw little change in the second half of 2012. Trading costs for the Russell 2000 and MSCI World each increased three basis points to 47 and 31, respectively. The S&P 500 increased one basis point to 30 and the MSCI Emerging Markets decreased one basis point to 44. A three-basis-point jump is not “extraordinary” in any way, Ms. King said.
The average trading costs for all sectors in the developed world increased in the second half of the year, outside of the resources sector, which decreased by one basis point to 28. Costs increased four basis points, about 15%.
With volatility down and trading costs up, the average trading cost per unit of volatility spiked for all indexes — 22.2% for the Russell 2000 to 132 basis points; 16.7% for MSCI World to 119 basis points; 12.5% for S&P 500 to 126 basis points; and 11.5% for the MSCI Emerging Markets to 146 basis points, according to the ITG report.
