Jul 3, 2010

Volatility Around The World


Markets fell again, S&P declining 5%, with gap on Tuesday morning and another large decline Wednesday afternoon. Volatility indexes around the world rose by almost 2 points, or 7.5%.

While compiling different volatility indexes I noticed some surprising extremes - India VIX, and Mexican volatility index in low 20s while VIX is at 30. Why is that volatility in emerging/developing markets is lower than US? Is it because of USD exchange rate risk, or something else? I really don't know.

In addition - US-traded ETFs do have higher ATM volatility (all numbers approximate b/c of large bid-ask spread)
INP (India) - 30%
EPI (India) - 30%
PIN (India) - 33%
EWW (Mexico) - 33%

It is possible to arb between domestic and US volatility? I don't have access to foreign markets, but other traders possibly could.

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