The U.S. equity market was roiled at the start and end of 2015, closing the year with the highest volatility since 2011, based on data from Investment Technology Group Inc.
Average volatility for the Standard & Poor's 500 stock index was 25% in 2015, five percentage points above the 2014 average, said Sandor Ferencz, vice president-analytics at ITG in Culver City, Calif. Volatility was high in the first quarter at 25% and dropped off to 21% in the second quarter before rising to 24% in the third quarter and then surging to a preliminary 30% in the last three months of the year. ITG measures annualized volatility as the 60-day historical volatility for the S&P 500.
Continuing declines in oil prices partially drove volatility throughout the year, but China's economic crisis in the second half of 2015 sent volatility soaring, Mr. Ferencz said. The plunge in oil prices sparked a rise in the fourth quarter of 2014, when S&P 500 volatility was at 22%, and apart from that dip in the second quarter of 2015, volatility continued to rise.
“We haven't seen volatility hit the 30% mark since the third quarter 2011, when it was 33%,” Mr. Ferencz said. At that time, the U.S. fiscal-cliff debt crisis and concern over Greece and the European Union drove volatility. “Volatility has ranged in the 20s since then, until this year,” he added.
Colleen Ruane, director-analytics at ITG in New York, added the spread on the S&P 500 last year also rose to 5.14 basis points in the fourth quarter from 4.6 basis points in the first quarter, particularly after the Aug. 24 flash crash. “Generally, the big thing was that Aug. 24 saw significant volatility spikes and rising spreads, and spreads have remained at an elevated state since then,” Ms. Ruane said.
U.S. trading costs averaged 37.6 basis points in 2015, hovering around 35 basis points to 36 basis points for the first three months of the year before jumping to 44 basis points in the last quarter, based on preliminary data. “The average cost increased somewhat,” but the overall range of trading costs increased significantly for the year, Ms. Ruane said.
Added David Griffin, New York-based product director of transaction cost analysis at State Street Corp. subsidiary Elkins/McSherry, a trade execution consultant “Our overall (cost) averages haven't moved that much, but the distribution curve has widened among the costs we've measured this year. It's not an ongoing trend. If I had to make a guess, I'd say it's because of the volatility spikes we've seen this year.”
