What are the most (and least) volatile stock markets in the world?
Volatility is usually used as a measure of risk – the more volatile an investment’s returns are, the riskier it seems. We looked at what stock markets had the highest volatility, but first we will cover what volatility actually means.
What is volatility?
We calculate volatility as the annualized standard deviation of the returns of an investment. Basically, if the price of an investment is prone to large jumps, the standard deviation of the investment is higher and thus the volatility.
There are two main types of volatility – implied and realized. Implied volatility refers to where the options market prices the volatility of a market. Given that most of the frontier markets we look at do not have options to trade, implied volatility is not useful to us.
Realized volatility, also known as historical volatility, is the volatility calculated from the actual movement in the stock market. It is backwards looking, while implied volatility is forward looking, so may not be as useful as an indicator of upcoming risk in the market but it is easily calculated across markets.
We calculated the realized volatilities of major stock market indices for 11 developed, 7 emerging, and 58 frontier markets. We looked at the realized 1 month, 6 month, and 1 year vol for each market.
Unfortunately, the volatilies of developed and emerging markets are currently skewed upwards due to Brexit last month, which disproportionately affected those markets and much less the frontier markets. That is why we look at the 1 year volatility as a better indicator of a market’s volatility.
The 10 Most Volatile Stock Markets In The World
Argentina is home to the world’s most volatile stock market. China, which experienced a roller-coaster move up in 2015 followed by a vicious move back down, is second, but was much less volatile prior to 2015. Japan, Europe (Euro Stoxx Index), France, and Germany all show up thanks to Brexit, but oddly not the UK. It will probably be worth looking at this list again in a year’s time when Brexit is out of the way.
The 10 Least Volatile Stock Markets In The World
The 10 least volatile stock markets in the world are all frontier markets. In contrast to frontier markets’ reputation as extremely volatile, the lack of liquidity in these markets can also result in markets that barely move at all.
The Full List of Stock Market Volatilities
Here is the full list of all 76 stock market indices that we looked at, separated into DM, EM, and Frontier markets: