Artemis Capital argues volatility is not just a hedge, but a standalone asset class shaped by psychology, policy, and market structure. Christopher Cole suggests many investors are unknowingly short volatility, while crisis alpha strategies may benefit when traditional diversification fails and correlations abruptly converge.
Volatility: The Market Price of Uncertainty
Artemis Capital Management
Christopher Cole
Research
12 Pages
Key Takeaways
Hidden Volatility Exposure: Hedge fund strategies showed rising correlation with a short S&P 500 straddle from 2003 to 2013, suggesting many managers were implicitly short volatility.
Extreme Volatility Regimes: German stock market volatility climbed from roughly 15–17% in 1919 to nearly 2,000% by 1923, challenging assumptions that volatility only accompanies falling markets.
Diversification Paradigm Shift: Portfolio optimization analysis suggested allocating 5–12% to long volatility exposure during financial repression, particularly when bond yields approached or fell below 1%.
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