Thirty years later, at least some of the characteristics of Black Monday are beginning to echo uncomfortably. With developed equity markets still posting very strong risk-adjusted returns, are investors complacent or not?
Much of the commentary regarding investor complacency takes aim at the very low levels of the widely-watched VIX index and investors’ perception of the VIX as a strong contrarian indicator. However, our analysis reveals that very low levels of implied equity market volatility have not been a major barrier to subsequent global equity market progress historically. In fact, since bull markets are associated with low levels of volatility, it should be no surprise that average global equity returns have been meaningfully higher in low volatility regimes than in high volatility regimes.