Regimes: volatility is not a number, it is a state
Volatility has two stylised facts that survive every dataset anyone has ever examined: it clusters, and it mean-reverts. Together they mean the market is almost always inside a regime — a stretch of days that resemble each other — and that regimes end. Knowing which one you are in is a more useful skill than forecasting the next number.
What is market regimes? A volatility regime is a persistent market state characterised by a typical level of volatility and a typical behaviour of it. Volatility clusters, so calm days follow calm days and violent days follow violent ones, and it mean-reverts, so no regime is permanent. Regimes are diagnostic descriptions of where the market has been, not signals about where it is going.
Low Volatility Markets
Low volatility markets are regimes in which daily price moves stay small — realised volatility around 10% annualised — options are cheap, and short-volati…
High Volatility Markets
High volatility markets are turbulent regimes of several-percent sessions with no reliable direction — realised volatility around 26% annualised — in whic…
Trending Markets
Trending markets are regimes of persistent direction with modest daily dispersion, where a run of small same-signed moves compounds into a large total ret…
Range-bound Markets
Range-bound markets are regimes of oscillation around a centre, where daily volatility can stay high while the multi-month return collapses toward zero — …
Crisis Volatility
Crisis volatility is the behaviour of a market in dislocation — the term structure inverts into backwardation, skew goes vertical, correlation across cons…
Mean Reversion in Volatility
Mean reversion in volatility is the persistent tendency of volatility to be pulled back toward a long-run level — around 14% annualised for NIFTY — with e…
Volatility Clustering
Volatility clustering is the empirical regularity — noted by Mandelbrot in 1963 and formalised by Engle's ARCH in 1982 — that large price changes tend to …