In the last week the volatility in the S&P/ASX 200 index has reached a four year high, based on my own volatility percentage indicator. Historically the ASX200 index generally has volatility of between 0.6% and 1.5% per day, however in the last week it has climbed to its highest level in 4 years at above 1.6%.
A higher volatility means that the price can change dramatically over a short time period in either direction. Generally, the higher the volatility, the riskier the market. It can be times like this when investors may be assessing the general market volatility to be high for them stepping away until this reduces. This is a commonly used risk management tool.
I am not suggesting that the market is headed for another 2008, however it is interesting to note that back then, the volatility of the index blew out completely.
Click on the image below for a larger clearer picture.