Volatility, as measured by the CBOE Volatility Index (VOLATILITYINDICES:^VIX), jumped more than 40% over Thursday and Friday, as turmoil in emerging markets began to rattle investors globally. The index, commonly known as the VIX, is a measure of investor expectations for volatility of the stock market (more specifically, the S&P 500 (SNPINDEX:^GSPC)), looking ahead over a 30-day period.
Yet despite this pop, the VIX remains 10% below its historical average going back to its inception in January 1990. In fact, volatility was unusually low in 2013. In the following video, Motley Fool contributor Alex Dumortier points out the elephant in the room -- markets that brought volatility down in the post-crisis period -- and suggests that investors shouldn't expect the "new normal" of depressed volatility to last. Indeed, Thursday and Friday's increases could be just the start of a recalibration to a higher range for the VIX, one that is closer to its "old normal" historical average.
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Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter: @longrunreturns. Mike Klesta has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.