Weekly market returns and volatility

Previously we’ve looked at the daily volatility of the FTSE 100 Index (here and here), in this article we will look at the average weekly returns and volatility of the Index.

Since 1984, when the FTSE 100 Index was introduced, the mean weekly return of the index has been 0.13%. In other words, when the index is at the 6000 level, the average change in the index in a week has been 8.1 points. However, this single figure masks how the mean return of the index has changed by decade – this is shown in the following chart.

Weekly mean returns of the FTSE 100 Index by decade

In the 1980s the mean weekly return was 0.29%, which then fell to 0.22% the following decade (which marked the end of the 20-year asset boom). In the 2000s, the mean weekly return fell to a negative -0.01, and so far this current decade the mean has been 0.08%.

Although the current decade’s mean weekly return has been 0.08%, the standard deviation is 2.1 (standard deviation is a common way of measuring volatility). This means that with the index at the 6000 level, for 32% of weeks the weekly change has been greater than -122pts or +131pts.

How has this weekly volatility changed over the years?

The following chart plots the standard deviation of weekly returns of the FTSE 100 Index on a 10-week rolling basis for the period 1984-2015. (A rolling 10-week calculation is used to smooth out the chart a bit.)

Standard deviation of rolling 10-week returns of the FTSE 100 Index [1984-2015]

As can be seen, there have been some obvious spikes in volatility – notably during the 1987 crash and credit crunch in 2008. But overall the general level of weekly volatility of the index has not changed significantly in the last three decades.

In fact the average standard deviation since 1984 has been 2.1 – so the current level of weekly volatility is pretty much exactly at the mean level for the past 30 years. And, at the risk of getting too iterative, the standard deviation of the mean of the standard deviations of the rolling 10-week returns of the index is moderately low at 1.1; meaning that for 68% of all 10-week rolling periods the volatility is between 1.0 and 3.9.

Extract taken from the The UK Stock Market Almanac.

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