Ahead of the curve: What happened to equity volatility in 2022 and what next?

• Technical factors, including derivatives exposures, are influencing markets
• This looks like a cheap environment for hedging downside equity risk

Something strange happened last year. Expectations about the future level of volatility in US equities – implied volatility – behaved in a very unusual way. In a falling market, the price of implied volatility normally rises because equity falls are associated with a worsening macroeconomic outlook, implying more market risk. Expectations of future volatility therefore increase. 

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