Market volatility historically ties closely to sell-offs, where intense selling and reduced market-maker activity drain liquidity. The rise of derivatives and leveraged products, including perpetual swaps and leveraged ETFs, now amplifies liquidity stress in both upward rallies and downward drawdowns, creating sharp swings regardless of direction. Effective tail-risk management thus requires a balanced, two-sided approach.
Historical Volatility Patterns Across Assets
Options serve as essential instruments for controlling portfolio volatility. Investors must account for their costs, often offsetting them through fixed-income yields or carry premiums. Monitoring volatility term structures and correlation shifts reveals optimal entry points and relative-value trades during turbulent periods.
Data across equities, credit, foreign exchange, and cryptocurrencies reveal a robust link between elevated volatility and declining prices. These assets experience abrupt, non-linear volatility surges when risk appetite contracts sharply, coinciding with price drops.
