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Volatility Is Up In The First Half Of 2012, Not Necessarily A Bad Thing

Tue, 31 Jul 2012 16:02:38 GMT

Volatility is up by as much as 5.61 points in the first half of 2012 across major world markets, driven by uncertainty arising from the Euro-zone debt crisis, slowing economies in emerging markets, as well as the rising tide of pending regulations and the presidential election in the United States. Markets in the East are showing the greatest volatility in the first half of 2012 and have had experienced the largest point increases in volatility relative to the first half of 2011: Hong Kong’s Hang Seng Index increased by 5.61 points, Japan’s TOPIX TR by 3.90 points and its Nikkei 225 by 3.59 points. US markets, while still enduring a rise in volatility (S&P 500 TR up 1.99 points and DJIA up 1.38 points), have had the lowest point increases from first half 2011 to first half 2012. European markets are caught in between, with Britain’s FTSE 100 up 2.48 points, Germany’s DAX Index increasing by 2.30 points, and France’s CAC-40 up 2.21 points.

Monthly Average Standard Deviation

Despite the increases in volatility, all markets have had positive monthly average returns during the first half of 2012. Five of the nine indices listed here are outpacing their first half 2011 returns and the TOPIX TR, Nikkei 225, and Hang Seng indices have experienced a complete turnaround in their average monthly return performances. These three indices, while showing the greatest average volatility in first half 2012, managed to generate the largest positive point swings in their average returns from the first half of 2011: the TOPIX increased by 2.08 points, the Nikkei 225 by 1.92 points, and the Hang Seng by 1.63 points.

Blog Monthly Average Returns for First Half 2011 and First Half 2012

Volatility is sometimes thought of as a negative portfolio aspect, but this isn’t always the case. Investors should keep in mind that volatility in returns is not always a bad thing, especially if the volatility is on the upside.

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