When the Dust Flies: How Volatility Events Affect Asset Class Performance

April 2018

Some investors have been surprised by the duration of the current stock market rally, and until just recently, the very low level of equity market volatility (e.g., VIX). However, many are concerned about the possibility of market volatility spikes. PGIM’s Institutional Advisory & Solutions (IAS) group investigates asset class performance before, during, and after volatility events. Specifically, how do stocks and bonds perform during such events? Is asset class performance leading into an event different than after the event?

First IAS defines two types of volatility events: “spikes” and “post peaks.”

A volatility spike event is a significant sudden increase in volatility, and IAS measures asset class performance while “the dust is flying.”

In contrast, a volatility post peak event is a period of high volatility followed by returning to its pre-peak level, and IAS measures how asset classes perform “after the dust has settled.”

In this paper, the team examines 26 volatility spike events, and 25 post peak events, across a 68-year span, in a variety of market environments.


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