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If US starts offering negative interest rate, is it possible that there is an increase in market volatility without the stock market correcting?

In general can volatility spike without stock market correcting? If so how?

  • You do realize market volatility, in a normal market, if measured in real time will be reflecting the prices in the market. For very rare events this might happen but it will revert back to the values reflected in the market scenario quite quickly. – DumbCoder Jan 28 at 10:04
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    Do you mean implied volatility (as reflected in indexes like VIX) or actual volatility? – D Stanley Jan 28 at 14:17
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Sure. Volatility is a measure of price movements in any direction, not necessarily levels. Actual volatility is measured by the magnitude of periodic changes of prices (how big the swings are). Imagine a calm sea where the tide is rising. There are no waves (volatility) but the level (price) is rising smoothly. Now imaging a turbulent sea. There are many crashing waves but the average level is not changing. The market could swing wildly from one day to the next without being in a "correction" state.

Implied volatility (how volatile investors think the market will be) is measured by various option prices (the higher the expected volatility, the higher the prices of options). This too can be high without a market correction, since market expectations could be different than what actually happens.

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  • Does implied volatility also rise because of perceived expectation of future liquidity? Such as some economic event? Where the markets would not correct but everyone is buying options to hedge? – Slartibartfast Jan 28 at 15:21
  • That's a lot of threads to try and tie together. Implied volatility can change for lots of reasons, so there's not a way to say that it will/can rise because of X. – D Stanley Jan 28 at 15:32

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