U.S. market volatility was down in 2013 and remained extremely stable throughout the year, according to data from Investment Technology Group Inc.
The average annualized volatility for the Standard & Poor's 500 stock index last year was 21%, down from about 25% in 2012 and 30% in 2011. Every quarter of 2013 saw an annualized volatility of between 20% and 22%.
“Volatility is coming down quite nicely,” said Sandor Ferencz, ITG vice president, analytics, based in Culver City, Calif.
ITG measures annualized volatility as the 60-day historical volatility for the S&P 500.
U.S. trading costs, both as a whole and for the S&P 500, were relatively flat from 2012 at an average of 38 basis points. However, costs rose to 42 basis points in the fourth quarter for the S&P 500 from 34 in the second quarter and 37 in the third quarter. Small-cap equity trading costs have been rising the past couple of quarters, which could be partially behind the cost increase, said Colleen Ruane, director, analytics research, at ITG in New York. However, she added small caps do not make up a large portion of the universe.
“Generally, when volatility is flat, the spread is flat, too, which we saw most of the year,” Ms. Ruane said.
The average spread was between 4.21 basis points and 4.49 basis points each quarter of the year, down from an average of 4.88 basis points in 2012.
The Chicago Board Options Exchange Market Volatility index, known as the VIX, was an average 14.8% for the year, down from 17.8% in 2012. In fact, the VIX never topped 20% in a single day during the year, according to ITG data. The only days it reached 20% were June 20, June 24 and Oct. 8 and 9. Concerns over announcements about the Federal Reserve possibly starting to taper its bond buying program and credit problems in China resulted in the slight volatility upticks in June. The October minispikes came in the middle of the U.S. government shutdown.
The third quarter of 2011 was the last big spike in the volatility and cost spread, Ms. Ruane noted.
Trading costs in the U.S. actually were higher than those of Europe ex-U.K., but were significantly lower than in emerging markets and Asia-Pacific ex- Japan, and slightly lower than in the U.K. (Trading costs are associated with the region, not the constituents.)
Europe ex-U.K. had the lowest average trading cost at 35.3 basis points; followed by Canada, 39; U.K., 41.7; Asia-Pacific ex-Japan, 52.3; Japan, 59.9; and emerging markets, 75.4.