-
February 3, 2014
The Buzz: Equity and vol market response to EM pressure Options
Research
Global equity performance on prior EM pullbacks
EM pressure unlikely to spill over to DMOur Global Markets team
highlighted two main channels through which EM weakness can affect
DMs:
The trade channel: gross exports to EM are a little less than 5%
of GDP for the US.
The financial channel: US banking exposures account for 5.5% of
total banking assets when looking at EM overall and 1.9% when
looking at the most troubled countries.
Neither channel seems large enough to create a sustained impact
on the US in our view.
The volatility response has been strong Two of the largest ytd
shifts in implied vol have come from Turkey and Brazil (EWZ) with
moves of +11 and +7 vol pts, respectively. SPX 1m implied vol is up
+4 vol pts and VIX +5. The SPX vol move appears high given the weak
links between EM and the US across trade and banking channels. Low
liquidity in many EM assets may be the reason, as investors may
prefer to use DM markets as hedging tools during periods of
stress.
Historical perspective: US and global equity performance on EM
pullbacks We looked at S&P 500, VIX and global equity
performance across 19 EM equity pullbacks of 5% or greater over the
past decade.
The median episode saw a 12% fall in EM equities and a 6% fall
in the S&P 500.
Across global equity indices, Russia, China and Brazil have
tended to be hit the hardest.
In the current decline MSCI EM is down 5% and the S&P is
down 3.6%.
YTD SPX move > median 1m drawdownTo get a better
understanding of how the recent decline in the S&P 500 compares
from an historical perspective, we look at S&P 500 peak-trough
declines back to 1960. The median SPX drawdown over a 2-week period
has been -2%, and -3% over a 1-month period. The max drawdown on
the S&P 500 since its 2014 high of 1848.4 on January 15 has
been -4%, a drop higher than the median SPX drawdowns over 2-week
and 1-month periods.
Krag Gregory, Ph.D. (212) 357-3770 [email protected] Goldman,
Sachs & Co.
Jose Gonzalo Rangel (212) 357-6538 [email protected]
Goldman, Sachs & Co.
Goldman Sachs does and seeks to do business with companies
covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment
decision.For Reg AC certification and other important disclosures,
see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US
affiliates are not registered/qualified as research analysts with
FINRA in the U.S. This report is intended for distribution to GS
institutional clients only.
The Goldman Sachs Group, Inc. Global Investment Research
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February 3, 2014
Goldman Sachs Global Investment Research 2
The response of global equity markets to EM pressure
Our Global Markets team believes that continued pressure on EM
assets is unlikely to spill over into DM markets on a sustained
basis. As described in the latest Global Economics Weekly, What
happens in EM (mostly) stays in EM, January 29, there are two main
channels through which EM weakness can affect DMs. The first is
through trade, the second is through banking and financial
links.
The trade channel: Gross exports to EM are a little less than 5%
of GDP for the US; therefore trade exposures seem manageable except
under a very broad-based EM slowdown. Goldman Sachs US economist
Jan Hatzius estimates that assuming a 10% drop in overall EM import
demand as a result of the recent troubles would mechanically shave
0.5 percentage points from real GDP growth1.
The financial channel: BIS data reports overall exposure of the
DM banking system to EM at around US$5trn, close to 20% of overall
external positions, so DM bank exposures to key EM economies do not
look too alarming. US banking exposures are likewise quite small,
accounting for 5.5% of total banking assets when looking at EM
overall and 1.9% when looking at the most affected countries
(Argentina, Brazil, Russia, South Africa, Turkey, Indonesia and
India).
Impact on US corporate profits: Our economists estimate that EM
subsidiaries account for 5.5% of US corporate profits overall and
for 1.0% when looking only at the most troubled economies. Again,
short of a very bad outcome with significant contagion across EM
and the broader global economy, this is a manageable issue in our
view.
Global equity volatility response Last week, Central Banks in
Turkey, India and South Africa all hiked rates. While these shifts
are helpful, it is not yet clear how much stability the measures
will provide without further action. Volatility has already
broadened beyond EM. We analyze year-to-date equity returns and
shifts in implied volatility across global equity indices and US
country and sector ETFs to assess the shift in global risk
sentiment (Exhibit 1).
Strongest volatility response in Turkey and EWZ: Russia, Turkey,
China and Brazil top the list of ytd market declines with returns
between -11% and -8%. Two of the largest ytd shifts in implied
volatility have come from Turkey and Brazil (EWZ). Both are EMs
with large current account deficits and 1m implied volatility
levels have increased seven and five vol points respectively. While
the EWZ is down 12%, implieds are only up 5.4 points, so one could
argue that SPX implieds have taken a larger hit given the
respective index return. SPX 1m implied vol is currently at 15.6
and has increased 4 vol points in 2014 or approximately 1-to-1
relative to the spot index move.
Why is volatility up so much in the US? As we saw last June,
periods of extreme pressure in EM can spill over to DM markets on a
day-by-day basis. One line of reasoning is due to liquidity. Given
low liquidity in many EM asset classes, investors may use DM
markets as hedging tools during times of stress or because pressure
to reduce risk more generally forces selling of more liquid assets.
As we highlighted in last weeks edition of The Buzz, S&P 500 1m
skew has been well bid and VIX open interest and volume has been
higher than one might expect given the low direct links between EM
and DM trade and banking channels.
1 US Economic Analyst, A pothole for GDP growth, January 31,
2014.
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February 3, 2014
Goldman Sachs Global Investment Research 3
Exhibit 1: Year-to-date moves across global equity markets. The
graphs below show 1m 50 delta implied volatility. As of January 31,
2014.
Source: Goldman Sachs Global Investment Research.
-11
-9
-9
-8
-8
-5
-4
-4
-4
-3
-3
-3
-3
-3
-2
-2
-2
0
0
+2
4
7
3
4
2
3
2
5
5
1
4
3
5
5
3
6
3
5
2
2
-12 -8 -4 0 4 8 12
RDXUSD
Turkey
HSCEI
Nikkei 225
Bovespa
Hang Seng
Kospi 200
S&P 500
FTSE 100
NIFTY
STOXX50E
S&P/ASX 200
Russell 2000
DAX
NASDAQ 100
STOXX 600
TWSE
IBEX 35
S&P TSX 60
FTSE MIB
Return (%) 1m Impl Vol Chg.
Global Equity Indices
5
4
4
4
4
1
2
2
2
-12
-10
-9
-9
-8
-7
-7
-6
-4
-12 -8 -4 0 4 8 12
Brazil (EWZ)
China (FXI)
Korea (EWY)
Emerging (EEM)
Mexico (EWW)
Hong Kong (EWH)
Japan (EWJ)
Taiwan (EWT)
Canada (EWC)
1m Impl Vol Chg.Return (%)
Country ETFs
-6
-6
-5
-5
-4
-4
-3
+1
+3
4
3
4
4
4
4
2
5
0
-10 -5 0 5 10
Cons. Discr. (XLY)
Energy (XLE)
Staples (XLP)
Materials (XLB)
Industrials (XLI)
Financials (XLF)
Tech (XLK)
Health Care (XLV)
Utilities (XLU)
1m Impl Vol Chg.Return (%)
Sector ETFs
Moves: Dec 31, 2013 - Jan 31, 2014
40
26 2623 23 21 21
20 20 18 18 17 16 16 15 15 14 14 12 12
40 3942
35
40
34 3431 31 31
2926
24
29
2528
23
2825
1715
1915 17 17
17
12 13 119
12 1110
1210
129 9 84
9
14
19
24
29
34
39
44Current 1m implied volatility 1y High 1y Low
2725 24 23 23
1918
1513
18 18 17 17 17 16 15 14 13
38
32 3435
33 34
30
26
3033 32
27
19
30
25 25
18 17
15 13
1715
12 13 13 1210
12 12 11 1012 11 11
8 84
9
14
19
24
29
34
39
44 Current 1m implied volatility 1y High 1y Low
Where are we now? Current level of 1m implied volatility.
Country Equity Indices
Country and US sector ETFs
Moves: Dec 31, 2013 - Jan 31, 2014
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February 3, 2014
Goldman Sachs Global Investment Research 4
Exhibit 2: Implied volatility response versus year-to-date
equity returns across global indices. X axis = ytd equity return
(local currency); Y axis = change in 1m 50 delta implied
volatility. As of January 31, 2014.
Source: Goldman Sachs Global Investment Research.
Perspective: Avg VIX level of 14.2 in January 2014 = avg over
calendar year 2013 For all of the talk about heightened levels of
volatility, the market is only down -3.6% from its closing high.
S&P 500 realized volatility over the month of January was 12.6
(a whopping 1.6 vol points above the full year realized volatility
of 11 over 2013) and the average VIX level in January was 14.2, the
exact level of the average VIX level in 2013. But all of these
statistics mask an increase in volatility over the back-half of the
month with five and ten-day realized volatility at 15, and Fridays
closing VIX level of 18.41 was the ytd high.
Growth heals all wounds? We also think a patch of softer US data
and the fall in the flash China PMI were central to the recent
market declines. EM worries may have acted as a coordinating
mechanism for investors already feeling overly exposed to cyclical
assets during a softer patch for US and global data and this week
brings fresh US data including the ISM on Monday, ECB/BOE/RBA
decisions throughout the week and payrolls on Friday. While the
Chinese markets are closed for the Lunar New Year Holiday, Chinas
official manufacturing PMI held in at 50.5 and a solid US ISM could
remove a lot of the gloom that has descended on stocks.
RDXUSD
XU030
HSCEI
N225
Bovespa
HSI
Kospi 200
SPXFTSE 100
NIFTY
Euro Stoxx 50
ASX 200
RUTDAX
NDX
Euro Stoxx 600
TWSE
IBEX
TSE60FTSE MIB
EEM
y = -0.06x + 3.53
0
1
2
3
4
5
6
7
8
-12 -10 -8 -6 -4 -2 0 2 4
1m im
plie
d vo
latil
ity s
hift
YTD return (%)
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February 3, 2014
Goldman Sachs Global Investment Research 5
US and global equity performance during EM equity pullbacks
Our US Portfolio Strategy team examined S&P 500 performance
across 19 EM equity pullbacks of 5% or greater over the past decade
in US Thematic Views: EM pullbacks and the S&P 500, January 29,
2014. We extend the analysis to include VIX and global equity
performance. Exhibit 3 shows the performance of the MSCI EM index
in local currency terms since 2004, excluding the financial crisis.
The median episode saw a 12% fall in EM equities accompanied by a
6% fall in the S&P 500. Across global indices, Russia, China
and Brazilian equities have tended to be hit the hardest. In the
current decline MSCI EM is down 5% and the S&P is down 4%.
Exhibit 3: Russia, China and Brazil have tended to be hit the
hardest during EM equity pullbacks over the last decade Returns on
MSCI EM and the other global indices are in local currency. Returns
on country ETFs are in USD. Data from January 2004 to January 31,
2014.
Source: Goldman Sachs Global Investment Research.
Days MSCI EM Rtn (%) S&P Rtn (%) VIX ChgMar-04 Mar-04 23 (5)
(3) 3Apr-04 May-04 35 (18) (5) 5Mar-05 Apr-05 53 (9) (6) 3Oct-05
Oct-05 15 (8) (2) 0May-06 Jun-06 35 (21) (8) 12Feb-07 Mar-07 11 (9)
(6) 9Jul-07 Aug-07 25 (15) (6) 13Oct-07 Jan-08 85 (21) (15)
11Nov-08 Nov-08 16 (18) (25) 33Jan-09 Mar-09 55 (15) (25) 14Jun-09
Jun-09 22 (8) (5) 1Oct-09 Nov-09 15 (6) (5) 7Jan-10 Feb-10 28 (10)
(8) 9Apr-10 May-10 46 (13) (10) 18Jan-11 Feb-11 51 (6) 3 4Apr-11
Oct-11 182 (24) (14) 21Oct-11 Nov-11 28 (8) (10) 10Mar-12 Jun-12 82
(12) (8) 11Jan-13 Jun-13 173 (13) 9 4
35 (12) (6) 9Dec-13 Jan-14 31 (5) (4) 5
DatesEquity Market Moves During EM Equity Pullbacks
19 epsiode median -18-16
-14 -14-13
-12 -11-10-10 -10 -9
-9-9 -8 -8 -8 -8 -8
-7 -7-6
-19
-15 -15 -14-14
-13-11 -11
-6
-11-9
-8-9
-5
-2-3
2
-8
-4
0
-3 -3
-6
-4
-3-2 -2
0
-3 -4
-12
-10-9 -9
-6-8
-4
-7
-7
-20
-15
-10
-5
0
5
RD
XUSD
HSC
EIBo
vesp
aXU
030
Han
g Se
ngTW
SEN
IFTY
FTSE
MIB
Nik
kei 2
25Ko
spi 2
00IB
EX 3
5R
usse
ll 20
0D
AXTO
PIX
FTSE
100
STO
XX5
0EN
ASD
AQ 1
00ST
OX
X 60
0S&
P TS
X 60
S&P/
ASX
200
S&P
500
Braz
il (E
WZ)
Chi
na (F
XI)
Emer
ging
(EEM
)Ko
rea
(EW
Y)Ta
iwan
(EW
T)M
exic
o (E
WW
)C
anad
a (E
WC
)H
ong
Kong
(EW
H)
Japa
n (E
WJ)
Median equity return during EM equity pullbacks over the past
decade (local currency)
Median move
Current ytd move
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February 3, 2014
Goldman Sachs Global Investment Research 6
A deeper dive into tail moves: Distributional characteristics of
S&P 500 max drawdowns
In this section we look more broadly at past S&P 500
peak-trough declines, in order to get a better understanding of how
the recent drop in the S&P 500 compares from an historical
perspective. Using daily rolling data, we define a max drawdown to
be the largest peak-to-trough decline experienced when holding an
asset over a specific time interval (Exhibit 4).
Historical perspective: Back to 1960, the median S&P 500
drawdown over a one-week period has been -1%. That is 1/3rd of the
median drawdown over a one-month period and about 1/7th of the
median drawdown over a six-month period. We found similar numbers
over the more recent sample from 1990-present.
Current episode: The max drawdown on the S&P 500 since its
2014 high of 1848.4 on January 15 has been -4% based upon closing
levels from peak to local trough, a larger decline than the median
SPX drawdown over past 2-week and 1-month periods.
Whereas the drawdown analysis only focuses on negative returns,
exhibit 5 broadens the study and looks at the entire S&P 500
return distribution over different windows. For example, on a daily
rolling basis the median one-month return on the S&P 500 is
about 1.1% and a bottom decile return is -4.6%, slightly lower than
the S&P 500 decline in January.
Exhibit 4: Distributional characteristics of S&P 500
peak-to-trough max drawdowns. Data from January 1960 to January 31,
2014.
Source: Goldman Sachs Global Investment Research.
Stats 1-day 1-week 2-week 1-month 3-months 6-months25 %-ile
-0.43 -1.98 -3.16 -4.91 -8.70 -11.75Median 0 -1.03 -1.82 -3.08
-5.63 -7.7075 %-ile 0 -0.43 -0.96 -1.81 -3.93 -5.49
Std Dev -0.43 -1.98 -4.91 -8.70 -11.75 -18.640.43 3.00 7.99
14.32 19.44 29.280.43 0.95 1.83 3.07 4.05 8.01
Drawdown Statistics from 1960 to January 2014
(1)% (2)%(3)%
(6)%
(8)%
(14)%
(12)%
(10)%
(8)%
(6)%
(4)%
(2)%
0%
1-week 2-week 1-month 3-months 6-months
Max
imal
Dra
wdo
wn
Investment Horizon
S&P 500 maximal drawdown
75 %-ile
25 %-ile
Median
Stats 1-day 1-week 2-week 1-month 3-months 6-months25 %-ile
-0.47 -2.24 -3.46 -5.08 -9.25 -12.56Median 0 -1.14 -2.01 -3.22
-5.60 -7.6475 %-ile 0 -0.51 -1.10 -1.91 -4.02 -5.48Std Dev 0.72
1.70 3.44 5.74 7.84 10.57
0.72 0.56 0.22 0.14 0.19 0.630.72 2.85 6.66 11.34 15.48
20.50
Drawdown Statistics from 1990 to January 2014
(1)% (2)%(3)%
(6)%
(8)%
(14)%
(12)%
(10)%
(8)%
(6)%
(4)%
(2)%
0%
1-week 2-week 1-month 3-months 6-months
Max
imal
Dra
wdo
wn
Investment Horizon
S&P 500 maximal drawdown
75 %-ile
25 %-ile
Median
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February 3, 2014
Goldman Sachs Global Investment Research 7
Exhibit 5: Distribution of S&P 500 returns. The table on the
right shows distributional features of SPX overlapping returns at
different frequencies. Data from January 1990 to January 31,
2014.
Source: Goldman Sachs Global Investment Research.
Stats 1d 5d 10d 1m 3mMin -9.0 -18.3 -25.9 -30.0 -41.8
5 %-ile -1.8 -3.7 -4.8 -6.9 -11.910 %-ile -1.2 -2.6 -3.3 -4.6
-7.725 %-ile -0.5 -1.0 -1.3 -1.7 -1.6Median 0.1 0.3 0.5 1.1
2.7Average 0.0 0.2 0.3 0.7 2.175 %-ile 0.6 1.5 2.1 3.3 6.790 %-ile
1.2 2.7 3.7 5.4 10.195 %-ile 1.7 3.7 5.0 7.1 13.1
Max 11.6 19.1 21.6 23.4 38.8
S&P 500 Return Distributions 1990-Present (%)
0%
5%
10%
15%
20%
25%
(30)
- (2
8)
(26
) - (2
4)
(22
) - (2
0)
(18
) - (1
6)
(14
) - (1
2)
(10
) - (8
)
(6 )
- (4)
(2) -
0
2 - 4
6 - 8
10 -
12
14 -
16
18 -
20
22 -
24
Freq
uenc
y (%
)Distribution of Monthly SPX Overlapping Returns
(1990-Present)
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February 3, 2014
Goldman Sachs Global Investment Research 8
Cross Asset Risk Barometer: EM credit spreads and FX implieds
remain elevated
Exhibit 6: Outside Japan, 1m implieds remain below median levels
across global indices. Credit spreads and FX 1m implieds are mixed.
Commodity 1m implieds remain low. Data: January 2, 2007 January 31,
2014. Spanish and Italian 10y bond spreads in the table below refer
to the spreads versus 10y German bonds. In the bar graph below we
benchmark changes relative to December 31, 2013.
Source: Goldman Sachs Global Investment Research.
Equity Vol (1m Implied) Credit Metrics (Levels)
Index CurrentChg (1w)
1y Peak
Overall Peak
% to Peak Peak Date
Curr %-ile Index Current
Chg (1w)
1y Peak
Overall Peak
% to Peak Peak Date
Curr %-ile
Nikkei 225 25.7 3.5 39.0 88.8 245 27-Oct-08 70 EEMCDS 340 -1.5
378 1022 201 23-Oct-08 86TOPIX 24.1 3.3 39.0 92.3 282 27-Oct-08 64
I iTraxx Asia ex Jap. 150 2.8 171 650 334 24-Oct-08 66Switzerland
14.9 1.2 20.1 68.0 356 16-Oct-08 42 I Italy 10y Bond Spr. 221 -2.2
348 552 150 9-Nov-11 65Spain (IBEX) 23.2 0.3 27.1 77.3 234
27-Oct-08 41 SSpain 10y Bond Spr. 210 -1.5 385 633 202 24-Jul-12
58VIX 18.4 0.3 20.5 80.9 339 20-Nov-08 41 I iTraxx Senior Fin. 102
-3.5 200 361 256 25-Nov-11 35Euro Stoxx 50 19.7 1.7 23.7 75.8 284
16-Oct-08 38 EEU IG CDX 5y 82 -2.3 133 217 164 5-Dec-08 23Germany
(DAX) 18.1 1.9 22.2 81.5 350 10-Oct-08 38 I US IG CDX 5y 71 -1.0 98
283 296 20-Nov-08 14Italy (MIB) 21.5 1.7 32.1 70.1 226 16-Oct-08 38
HUS HY CDX 5y 351 -0.3 478 1674 377 9-Mar-09 11S&P 500 15.6 1.1
18.7 72.2 363 20-Nov-08 38 EEU XO CDX 5y 316 0.0 528 1158 266
5-Mar-09 10UK (FTSE 100) 15.4 2.2 19.6 75.9 393 16-Oct-08 34 SSovX
WE 5y 57 1.1 108 387 578 25-Nov-11 5France (CAC) 18.2 1.7 22.6 73.4
303 16-Oct-08 31 FX Vol vs. USD (1m Implied)NDX 16.3 0.9 19.7 74.1
354 20-Nov-08 30 ZZAR 18.1 2.5 20.1 70.0 287 23-Oct-08 67Russell
2000 19.6 2.6 22.4 78.4 299 20-Nov-08 29 MMXN 12.5 0.1 17.6 74.9
502 22-Oct-08 59China (HSCEI) 22.8 2.1 34.7 113.8 400 27-Oct-08 27
BBRL 13.7 0.1 18.7 75.0 447 23-Oct-08 51Em. Mkts. (EEM) 23.0 1.3
32.1 108.6 373 24-Oct-08 26 KKRW 8.3 0.5 13.3 75.4 813 24-Oct-08
35Australia 13.6 2.1 19.2 66.9 391 28-Oct-08 24 uAUD 10.7 0.4 15.2
47.8 346 27-Oct-08 33Bovespa 21.4 -0.5 33.6 95.4 345 27-Oct-08 23
uNZD 11.4 0.4 15.8 42.8 275 27-Oct-08 31Hang Seng 16.6 2.5 25.7
110.2 566 27-Oct-08 19 JJPY 9.3 -0.7 17.5 37.3 299 27-Oct-08
26Russia 25.7 3.8 30.9 161.7 529 26-Nov-08 19 CCHF 8.6 0.5 12.5
25.3 193 18-Dec-08 25India (NIFTY) 15.4 0.4 29.4 100.7 553
27-Oct-08 11 uGBP 7.2 0.1 9.8 30.8 329 27-Oct-08 25Canada 11.6 1.1
16.9 83.0 618 13-Oct-08 8 uEUR 7.1 0.5 10.0 28.8 306 30-Oct-08
16KOSPI 200 14.3 1.4 20.7 86.6 506 29-Oct-08 8 Commodity Vol (1m
Implied)Taiwan 12.4 2.6 17.5 67.0 439 28-Oct-08 7 Gold 15.8 1.0
30.0 60.0 281 29-Oct-08 25
Average 18.6 1.7 25.5 87.1 380 31 Copper 15.9 2.1 27.2 83.6 427
31-Oct-08 5WTI 19.8 1.2 31.9 117.4 493 14-Jan-09 5
Since January 2007Current %-ile
(Since Jan. 2007) Since January 2007Current %-ile
(Since Jan. 2007)
0 25 50 75 100Curr %-ile
0 25 50 75 100
0 25 50 75 100
0 25 50 75 100Curr %-ile
Low - Risk Aversion - High Low - Risk Aversion - High
43 4237 37 36 34 33 32 29 27 27 26 25
21 20 20 20 1815 13 13 10 8
2417 17 16 15 14
10
3
-5 -7
38 38
9 81
-1 -2-8
22
13
-13-20
-10
0
10
20
30
40
50
FTSE
100
S&
P 50
0
DA
X
TWS
E
CA
C40
VIX
Rus
sell
2000
AS
X 20
0
Eur
oSto
xx 5
0
Nas
daq
100
S&
P/TS
E 60
SM
I
IBE
X
Han
g S
eng
RD
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SD
Nik
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25
EE
M
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KO
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CD
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Bon
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CreditEquity Implied Volatility (1m) FX and Commodity Implied
Volatility (1m)
% C
hang
e si
nce
Dec
embe
r 31,
201
3
-
February 3, 2014
Goldman Sachs Global Investment Research 9
Skew View: Highest in the US on both an absolute and percentile
rank basis
Exhibit 7: Russell 2000 and S&P 500 one-month skew are
highest on an absolute and percentile basis, RDXUSD and FTSE MIB
are lowest Normalized skew: (25 delta put 25 delta call) / 50 delta
implied volatility. Percentiles are calculated using data from
January 2, 2007 January 31, 2014.
Source: Goldman Sachs Global Investment Research.
Global US SectorIndices ETFs
1m Imp Current
Chg (1w)
Curr %-ile
Skew Current
Curr %-ile
Overall Peak
Peak Date
% to Peak Index
1m Imp Current
Chg (1w)
Curr %-ile
Skew Current
Curr %-ile
Overall Peak
Peak Date
% to Peak
Russell 2000 19.6 2.6 29 0.31 83 0.41 8/11/11 32 XXLF
(Financials) 17.8 0.4 20 0.22 67 0.44 08/11/11 103S&P 500 15.6
1.1 38 0.35 83 0.48 5/21/10 37 XXLE (Energy) 17.6 2.4 14 0.22 64
0.44 12/11/07 104China (HSCEI) 22.8 2.1 27 0.17 78 0.37 8/9/11 122
XXLI (Industrials) 17.3 0.9 29 0.27 61 0.53 08/16/07 96Hang Seng
16.6 2.5 19 0.20 77 0.38 8/8/11 90 XXLP (Staples) 13.9 1.3 58 0.26
44 0.46 08/24/07 75UK (FTSE 100) 15.4 2.2 34 0.30 76 0.46 8/10/11
56 XXLB (Materials) 16.9 0.1 14 0.21 43 0.41 08/24/07 90France
(CAC) 18.2 1.7 31 0.28 75 0.40 10/17/08 45 XXLU (Utilities) 12.9
-0.6 29 0.19 30 0.68 04/26/07 254Australia 13.6 2.1 24 0.28 75 0.53
12/1/08 90 XXLY (Discretionary) 16.4 1.5 29 0.21 16 0.50 08/01/07
137TOPIX 24.1 3.3 64 0.19 62 0.50 3/17/11 160 XXLV (Healthcare)
16.9 1.7 63 0.19 10 0.45 05/17/07 135Nikkei 225 25.7 3.5 70 0.19 61
0.55 3/17/11 185 XXLK (Tech) 15.1 0.1 23 0.18 9 0.44 10/29/08
139EuroStoxx 50 19.7 1.7 38 0.25 59 0.39 10/16/08 60 Average 16.1
0.9 31 0.22 38 0.48 126Germany (DAX) 18.1 1.9 38 0.25 58 0.39
8/15/07 54 International ETFsTaiwan 12.4 2.6 7 0.13 46 0.55 8/16/07
330 EEWC (Canada) 13.3 1.1 8 0.30 95 0.46 6/19/12 52NDX 16.3 0.9 30
0.24 40 0.43 5/21/10 82 EEWH (Hong Kong) 15.3 0.5 11 0.20 59 0.46
8/15/12 125 KOSPI 200 14.3 1.4 8 0.14 26 0.48 8/19/11 251 EEEM
(Emer. Mkts.) 23.0 1.3 26 0.23 54 0.42 8/11/11 81Switzerland 14.9
1.2 42 0.20 23 0.38 10/17/08 93 FFXI (China) 24.5 0.6 32 0.15 48
0.34 5/21/10 121Canada 11.6 1.1 8 0.21 21 0.46 11/8/11 118 EEWY
(Korea) 23.1 1.9 28 0.17 31 0.45 12/11/07 169India (NIFTY) 15.4 0.4
11 0.14 16 0.40 2/21/07 179 EEWJ (Japan) 19.4 2.8 44 0.12 22 0.58
7/17/09 382Spain (IBEX) 23.2 0.3 41 0.15 12 0.42 11/13/08 170 EEWT
(Taiwan) 17.7 2.0 12 0.13 15 0.55 2/16/07 321Bovespa 21.4 -0.5 23
0.13 11 0.42 10/30/08 220 EEWZ (Brazil ) 27.3 1.0 34 0.15 10 0.44
8/11/11 201Italy (MIB) 21.5 1.7 38 0.13 6 0.40 10/17/08 206 Average
20.4 1.4 24 0.18 42 0.46 182Russia 25.7 3.8 19 0.10 6 0.32 11/17/11
203
Average 18.4 1.8 30.4 0.21 47 0.43 133
(Since Jan. 2007)Option Volatility Option Skew 1m Skew: Current
%-ile Option Volatility Option Skew 1m Skew: Current %-ile
(1m Implied) (Norm. 1m 25 delta) (Since Jan. 2007) (1m Implied)
(Norm. 1m 25 delta)
0 25 50 75 100Vol %-ile Skew %-ile
0 25 50 75 100
0 25 50 75 100
Vol %-ile Skew %-ile
Low - Risk Aversion - High Low - Risk Aversion - High
0.350.31 0.30 0.28 0.28
0.25 0.25 0.240.21 0.20 0.20 0.19 0.19
0.17 0.15 0.14 0.14 0.13 0.13 0.130.10
0.30
0.230.20
0.17 0.15 0.15 0.130.12
0.27 0.260.22 0.22 0.21 0.21
0.19 0.19 0.18
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
S&
P 5
00
Rus
sell
2000
UK
(FTS
E 1
00)
Aus
tralia
Fran
ce (C
AC
)
Ger
man
y (D
AX
)
Eur
oSto
xx 5
0
ND
X
Can
ada
Han
g S
eng
Sw
itzer
land
TOP
IX
Nik
kei 2
25
Chi
na (H
SCEI
)
Spa
in (I
BE
X)
Indi
a (N
IFTY
)
KO
SP
I 200
Bov
espa
Italy
(MIB
)
Taiw
an
Rus
sia
EW
C (C
anad
a)
EE
M (E
mer
. Mkt
s.)
EW
H (H
ong
Kon
g)
EW
Y (K
orea
)
FXI (
Chi
na)
EW
Z (B
razi
l )
EW
T (T
aiw
an)
EW
J (J
apan
)
XLI
(Ind
ustri
als)
XLP
(Sta
ples
)
XLE
(Ene
rgy)
XLF
(Fin
anci
als)
XLB
(Mat
eria
ls)
XLY
(Dis
cret
iona
ry)
XLU
(Util
ities
)
XLV
(Hea
lthca
re)
XLK
(Tec
h)
1m Normalized Skew Country ETFsGlobal Indices Sectors
-
February 3, 2014
Goldman Sachs Global Investment Research 10
Exhibit 8: SPY normalized skew (3m) As of January 31, 2014
market close. Normalized skew: (25 delta put25 delta call) / 50
delta implied vol.
Exhibit 9: IWM normalized skew (3m) As of January 31, 2014
market close. Normalized skew: (25 delta put25 delta call) / 50
delta implied vol.
Exhibit 10: QQQ normalized skew (3m) As of January 31, 2014
market close. Normalized skew: (25 delta put25 delta call) / 50
delta implied vol.
Source: Goldman Sachs Global Investment Research. Source:
Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
Exhibit 11: Euro Stoxx 50 normalized skew (3m) As of January 31,
2014 market close. Normalized skew: (25 delta put25 delta call) /
50 delta implied vol.
Exhibit 12: EEM normalized skew (3m) As of January 31, 2014
market close. Normalized skew: (25 delta put25 delta call) / 50
delta implied vol.
Exhibit 13: HSCEI normalized skew (3m) As of January 31, 2014
market close. Normalized skew: (25 delta put25 delta call) / 50
delta implied vol.
Source: Goldman Sachs Global Investment Research. Source:
Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
0.23
0.28
0.33
0.38
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
SPY
norm
aliz
ed s
kew
(3m
)
0.25
0.28
0.31
0.34
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
IWM
nor
mal
ized
ske
w (3
m)
0.20
0.24
0.28
0.32
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
QQ
Q n
orm
aliz
ed s
kew
(3m
)
0.19
0.22
0.25
0.28
0.31
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
STO
XX50
E no
rmal
ized
ske
w (3
m)
0.16
0.20
0.24
0.28
0.32
0.36
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
EEM
nor
mal
ized
ske
w (3
m)
0.00
0.05
0.10
0.15
0.20
0.25
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
HSC
EI n
orm
aliz
ed s
kew
(3m
)
-
February 3, 2014
Goldman Sachs Global Investment Research 11
VIX Quicks: VIX @ 18.4, Feb to Jun VIX futures shift up ~0.2 to
1.4 vol pts.
Exhibit 14: The VVIX closed last Friday at 99.7, its highest
level since Oct 2013. As of January 31, 2014.
Exhibit 15: The VIX term structure remains inverted. Data as of
January 31, 2014.
Source: Goldman Sachs Global Investment Research.
Exhibit 16: VIX futures across maturities. As of January 31,
2014.
Source: Goldman Sachs Global Investment Research.
60
70
80
90
100
110
120
130
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14
CBOE VVIX Index
Date S&P 500 VIX Spot Feb-14 Mar-14 Apr-14 May-14 Jun-14
Jul-1424-Jan-14 1,790.3 18.1 16.2 16.2 16.8 17.3 17.7 18.231-Jan-14
1,782.6 18.4 17.6 17.4 17.4 17.7 17.9 18.21 wk Chg -7.7 0.3 1.4 1.2
0.6 0.4 0.2 0.0
1 wk % Chg -0.4% 1.5% 8.6% 7.1% 3.9% 2.3% 0.8% 0.0%
VIX Futures
Term Structure of VIX Spot and VIX Futures over Time
Changes in VIX spot and futures (Jan 24 to Jan 31)
18.4
17.617.4 17.4
17.7 17.918.2
18.1
16.2 16.216.8
17.317.7
18.2
1415151616171718181919
VIX Spot Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
31-Jan-14 24-Jan-14
0.3
1.4
1.2
0.6
0.4
0.20.0
VIX Spot Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-1411
14
16
19
21
Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14
Vola
tility
(%)
Jun = 17.85
May = 17.65
Apr = 17.4
Mar = 17.35
Feb = 17.6
VIX = 18.41
-
February 3, 2014
Goldman Sachs Global Investment Research 12
Hedging Landscape (95% Put Pricing): TWSE and S&P TSE 60
puts lowest cost globally
Exhibit 17: 1m 95% put pricing: TWSE the lowest globally.
Indicative pricing as of January 31, 2014. Pricing (% spot). Risk:
the maximum loss from buying a put is the upfront premium paid.
Exhibit 18: 3m 95% put pricing: S&P TSE 60 the lowest
globally. Indicative pricing as of January 31, 2014. Pricing (%
spot). Risk: the maximum loss from buying a put is the upfront
premium paid.
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
RankOrderbyCost(%spot)
0.250.28
0.320.36
0.500.52
0.570.62
0.700.77
0.821.03
1.141.20
1.29
0.550.58
0.610.61
0.720.76
0.941.12
1.211.26
1.45
0.390.500.52
0.590.640.64
0.670.690.70
0.0 0.3 0.6 0.9 1.2 1.5
TWSES&P/TSE 60
KOSPI 200NIFTY
ASX 200SMIHSI
FTSE 100DAX
BovespaEuro Stoxx 50
HSCEITOPIX
RDXUSDNikkei 225
EWCEWHSPY
QQQEWTEWJIWMEWYEEM
FXIEWZ
XLUXLKXLPXLYXLVXLBXLEXLI
XLF
Cost of 1m 95% Puts (% of Spot)
Cou
ntry
Indi
ces
Cou
ntry
ETFs
US
Sect
or E
TFs
RankOrderbyCost(%spot)
1.031.151.17
1.431.741.781.851.89
1.981.99
2.262.69
2.823.04
3.18
1.551.741.781.81
2.092.15
2.532.83
3.013.15
3.54
1.421.44
1.651.811.82
1.961.971.992.05
0 1 2 3 4
S&P/TSE 60KOSPI 200
TWSEASX 200
NIFTYFTSE 100
DAXHSISMI
BovespaEuro Stoxx 50
HSCEITOPIX
Nikkei 225RDXUSD
EWCSPY
QQQEWHEWJEWTIWMEWYEEM
FXIEWZ
XLUXLPXLKXLVXLYXLBXLI
XLFXLE
Cost of 3m 95% Puts (% of Spot)
Cou
ntry
Indi
ces
Cou
ntry
ETFs
US
Sect
or E
TFs
-
February 3, 2014
Goldman Sachs Global Investment Research 13
Global Put Spreads: S&P TSE 60 and TWSE screen as the
highest payout ratios To screen for hedging candidates, we rank
order the maximum payout ratios (maximum gain/entry cost) of 1m
97.5% / 92.5% put spreads, assuming each underlier settles below
the lower put strike at expiration. Risks: The maximum loss from
buying a put spread is the upfront premium paid.
Exhibit 19: Maximum payout ratios for 1m and 3m 97.5% / 92.5%
put spreads. Payout ratios: maximum gain / entry price assuming
each underlier settles below the lower put strike at expiration.
Indicative pricing as of January 31, 2014.
Source: Goldman Sachs Global Investment Research.
Country Indices Put Spread Index Level Strikes (% of spot)
Strikes 1m 3m 1m 3m
S&PTSE60 97.5/92.5 765.9/726.6 0.45 1.06 11.1 4.7TWSE
97.5/92.5 8251/7827.9 0.52 1.24 9.6 4.0KOSPI200 97.5/92.5
246.6/233.9 0.56 1.10 8.9 4.5NIFTY 97.5/92.5 5937.3/5632.8 0.57
1.19 8.8 4.2ASX200 97.5/92.5 5060.3/4800.8 0.65 1.14 7.7 4.4FTSE100
97.5/92.5 6347.7/6022.2 0.71 1.30 7.0 3.8HangSeng 97.5/92.5
21484.5/20382.8 0.73 1.43 6.8 3.5SMI 97.5/92.5 7986.6/7577 0.74
1.64 6.8 3.0DAX 97.5/92.5 9073.8/8608.5 0.81 1.25 6.2 4.0Bovespa
97.5/92.5 46448/44066.1 0.87 1.33 5.7 3.8EuroStoxx50 97.5/92.5
2938.6/2787.9 0.89 1.46 5.6 3.4HSCEI 97.5/92.5 9572.9/9082 1.02
1.59 4.9 3.1TOPIX 97.5/92.5 1190.1/1129.1 1.06 1.72 4.7
2.9Nikkei225 97.5/92.5 14541.7/13795.9 1.14 1.74 4.4 2.9RDXUSD
97.5/92.5 1489.8/1413.4 1.23 1.78 4.1 2.8Country
ETFsEWC(MSCICanada) 97.5/92.5 27.2/25.8 0.57 1.05 8.8
4.8SPY(SPDRS&P500ETFTrust) 97.5/92.5 173.7/164.8 0.68 1.15 7.4
4.3EWH(MSCIHongKong) 97.5/92.5 18.6/17.7 0.71 1.30 7.0
3.8QQQ(PowerSharesQQQTrustSeries) 97.5/92.5 84.1/79.8 0.72 1.31 6.9
3.8EWT(MSCITaiwan) 97.5/92.5 13.2/12.6 0.78 1.44 6.4
3.5IWM(iSharesTrustRussell2000Index) 97.5/92.5 109.4/103.8 0.90
1.44 5.6 3.5EWJ(MSCIJapan) 97.5/92.5 11.1/10.5 0.95 1.50 5.3
3.3EEM(MSCIEmergingMarkets) 97.5/92.5 37.2/35.3 0.99 1.53 5.1
3.3EWY(MSCIKorea) 97.5/92.5 57.6/54.6 1.04 1.62 4.8
3.1FXI(iSharesFTSEChina25Index) 97.5/92.5 33.7/32 1.07 1.63 4.7
3.1EWZ(MSCIBrazil) 97.5/92.5 38.3/36.3 1.24 1.74 4.0 2.9US Sector
ETFsXLU(Utilities) 97.5/92.5 38.1/36.2 0.50 1.28 10.0
3.9XLP(Staples) 97.5/92.5 39.7/37.7 0.53 1.11 9.4 4.5XLK(Tech)
97.5/92.5 34/32.2 0.63 1.29 7.9 3.9XLY(Discretionary) 97.5/92.5
61.3/58.1 0.69 1.30 7.2 3.8XLV(Healthcare) 97.5/92.5 54.6/51.8 0.71
1.29 7.0 3.9XLB(Materials) 97.5/92.5 42.9/40.7 0.71 1.38 7.0
3.6XLF(Financials) 97.5/92.5 20.5/19.5 0.75 1.34 6.7
3.7XLI(Industrials) 97.5/92.5 48.8/46.3 0.75 1.34 6.7
3.7XLE(Energy) 97.5/92.5 81.3/77.1 0.77 1.42 6.5 3.5
Put Spreads 97.5% / 92.5%
Put Strikes Pricing by TermPremium (% of spot) Max Payout
Ratios
11.1
9.6
8.9
8.8
7.7
7.0
6.8
6.8
6.2
5.7
5.6
4.9
4.7
4.4
4.1
8.8
7.4
7.0
6.9
6.4
5.6
5.3
5.1
4.8
4.7
4.0
10.0
9.4
7.9
7.2
7.0
7.0
6.7
6.7
6.5
0 2 4 6 8 10 12
S&P/TSE 60
TWSE
KOSPI 200
NIFTY
ASX 200
FTSE
HSI
SMI
DAX
Bovespa
Euro Stoxx 50
HSCEI
TOPIX
Nikkei 225
RDXUSD
EWC
SPY
EWH
QQQ
EWT
IWM
EWJ
EEM
EWY
FXI
EWZ
XLU
XLP
XLK
XLY
XLV
XLB
XLF
XLI
XLE
Maximum Payout Ratios Strategy: 1m Put Spread 97.5% / 92.5%
-
February 3, 2014
Goldman Sachs Global Investment Research 14
US Volatility Landscape
Exhibit 20: 50-delta implied volatility comparison across US
indices Data as of January 31, 2014 market close.
Source: Goldman Sachs Global Investment Research.
1m 3m 6m 12m 24m 1m 3m 6m 12m 24m 1m 3m 6m 12m 24mImplied
Volatility
Current (31-Jan-14) 15.6 15.4 15.9 16.7 17.7 19.6 19.6 19.8 20.5
21.4 16.3 16.0 16.5 17.6 19.21w Chg (since 24-Jan-14) 1.1 0.8 0.6
0.6 0.3 2.6 1.8 1.1 0.5 0.2 0.9 0.4 0.1 -0.1 0.1YTD Chg (since
31-Dec-13) 4.6 3.0 2.3 1.5 0.6 4.9 3.2 2.1 1.0 0.5 3.5 1.9 1.3 0.6
-0.1%-ile Rank (1y) 96% 90% 88% 83% 65% 95% 90% 86% 82% 69% 96% 86%
81% 60% 43%
Realized VolatilityCurrent (31-Jan-14) 12.8 10.6 10.6 11.4 12.2
16.6 14.7 14.7 15.2 16.1 15.9 12.4 12.2 12.7 14.21w Chg (since
24-Jan-14) 1.3 0.5 0.2 0.1 0.0 2.7 0.8 0.4 0.2 0.0 2.1 0.9 0.4 0.2
0.1YTD Chg (since 31-Dec-13) 3.1 0.2 0.8 0.3 0.1 3.0 0.1 1.0 0.6
0.1 6.7 0.5 1.0 0.2 0.2%-ile Rank (1y) 73% 25% 12% 18% 10% 76% 45%
36% 54% 11% 89% 41% 17% 12% 10%
Implied vs RealizedCurrent (31-Jan-14) 2.8 4.8 5.2 5.3 5.6 3.1
4.9 5.2 5.2 5.4 0.4 3.6 4.3 4.9 4.91w Chg (since 24-Jan-14) -0.2
0.3 0.4 0.5 0.3 -0.1 1.0 0.7 0.3 0.2 -1.2 -0.4 -0.2 -0.3 0.0YTD Chg
(since 31-Dec-13) 1.5 2.8 1.5 1.3 0.4 1.8 3.0 1.1 0.4 0.4 -3.2 1.4
0.3 0.4 -0.2%-ile Rank (1y) 66% 96% 100% 95% 99% 69% 95% 98% 80%
98% 40% 88% 93% 95% 92%
Normalized Skew*Current (31-Jan-14) 0.35 0.37 0.38 0.37 0.34
0.31 0.34 0.33 0.33 0.33 0.24 0.26 0.25 0.26 0.261w Chg (since
24-Jan-14) -0.02 0.00 0.01 0.01 0.00 -0.04 -0.02 -0.01 0.00 -0.01
-0.01 -0.01 0.00 0.00 0.01YTD Chg (since 31-Dec-13) 0.08 0.05 0.03
0.00 0.00 0.06 0.02 -0.01 -0.03 -0.03 0.05 0.02 0.01 0.01 0.01%-ile
Rank (1y) 86% 88% 83% 71% 31% 86% 90% 57% 53% 40% 58% 47% 18% 6%
8%
Term Structure
* Normalized skew: (25 delta put - 25 delta call)/ 50 delta
YTD 1m Vol Change (1 = 31-Dec-12)
1m Vol: +2.6 1y %-ile: 95% 1m Vol: +0.9 1y %-ile: 96%
Performance - 1 weekS&P 500 (SPX) Russell 2000 (RUT) Nasdaq
100 (NDX)
1m Vol: +1.1 1y %-ile: 96%
16 20 16 15 20 16
SPX RUT NDX SPX RUT NDX
1317 16
1115 12
66% 69%
40%
96% 95% 88%
86% 86%
58%
88% 90%
47%
-0.4%-1.2%
-0.6%
-1.5% -1.0% -0.5% 0.0%
SPXRUTNDX
16 15 1516 16
1718
1414 15
15 1616
17
9
11
13
15
17
19
1m 2m 3m 6m 9m 12m 24m
Impl
ied
Vola
tility
(%)
1m-6m: -0.3 (97%-ile)1m-12m: -1.1 (98%-ile)
20 19 20 2020 20
21
17 1718
1920 20
21
12
14
16
18
20
22
24
1m 2m 3m 6m 9m 12m 24m
1m-6m: -0.2 (97%-ile)1m-12m: -0.8 (98%-ile)
16 16 16 1717 18
19
15 15 1616
17 1819
10
12
14
16
18
20
22
24
1m 2m 3m 6m 9m 12m 24m
1m-6m: -0.2 (98%-ile)1m-12m: -1.2 (98%-ile)
31-Jan
24-Jan
Chart Legend
Impl Vol(%
)R
lzd Vol(%
)Skew
1y %-ile
Impl -R
lzd1y %
-ile
3m Vol Stats1m Vol Stats
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
31-Dec 5-Jan 10-Jan 15-Jan 20-Jan 25-Jan 30-Jan
SPX: 1.42 RUT: 1.33 NDX: 1.27
-
February 3, 2014
Goldman Sachs Global Investment Research 15
Global Volatility Landscape
Exhibit 21: 50-delta implied volatility comparison across global
indices. Data as of January 31, 2014 market close.
Source: Goldman Sachs Global Investment Research.
Index 1m 3m 6m 12m Level 1w Chg 1y%-ileLess Rlzd Level 1w
Chg
1y%-ile
Less Rlzd Level 1w Chg
1y%-ile
Less Rlzd
S&P 500 12.8 10.6 10.6 11.4 15.6 +1.1 95% 2.8 15.4 +0.8 90%
4.8 16.7 +0.6 83% 5.3
Russell 2000 16.6 14.7 14.7 15.2 19.6 +2.6 95% 3.1 19.6 +1.8 90%
4.9 20.5 +0.5 82% 5.2
Nasdaq 100 15.9 12.4 12.2 12.7 16.3 +0.9 96% 0.4 16.0 +0.4 86%
3.6 17.6 -0.1 60% 4.9
EuroStoxx 50 15.0 14.2 13.7 16.3 19.7 +1.7 90% 4.7 18.6 +0.8 74%
4.4 18.8 -0.1 30% 2.5
FTSE-100 10.3 9.8 10.1 12.2 15.4 +2.2 90% 5.1 15.0 +1.1 85% 5.2
15.7 +0.5 65% 3.5
DAX 14.1 12.7 12.3 14.8 18.1 +1.9 91% 4.0 17.2 +1.0 81% 4.5 17.4
+0.5 52% 2.7
Nikkei 225 25.9 22.0 23.5 27.4 25.7 +3.5 68% -0.1 24.0 +1.7 55%
2.0 22.3 +0.7 50% -5.1
TOPIX 23.0 17.7 20.1 24.3 24.1 +3.3 52% 1.2 22.6 +1.6 34% 4.9
21.2 +0.6 36% -3.0
KOSPI 200 14.5 13.4 12.5 13.7 14.3 +1.4 50% -0.2 15.0 +0.8 47%
1.5 16.1 +0.4 27% 2.4
Hang Seng 12.2 11.7 11.8 13.8 16.6 +2.5 78% 4.4 17.6 +1.5 87%
6.0 18.5 +0.6 85% 4.7
MSCI EEM 22.0 19.0 19.7 19.3 23.0 +1.3 86% 1.0 23.0 +0.9 88% 4.0
22.5 +0.2 68% 3.2
Bovespa 16.8 17.7 20.1 20.7 21.4 -0.5 44% 4.6 20.6 -0.7 37% 2.9
20.5 -0.2 40% -0.2
S&P/TSE 60 11.0 9.1 9.3 10.7 11.6 +1.1 59% 0.5 11.4 +0.3 25%
2.2 13.7 +0.1 19% 3.0
NIFTY 13.0 14.7 20.4 18.3 15.4 +0.4 32% 2.4 20.1 +2.7 79% 5.4
24.3 +0.8 90% 6.0
MSCI EAFE 10.2 10.2 10.6 12.4 16.2 +2.6 80% 6.1 15.8 +1.4 63%
5.6 17.2 +0.6 28% 4.8
ATM Implied Volatility
1w Return (%)
Realized Volatility 1m Implied Volatility
Performance3m Implied Volatility 12m Implied Volatility
3m Implied Volatility Level 1w % Change in 3m Implied Volatility
1m Implied Vol Change vs. Performance
24 23 2321 20 20 19 18 17 16 16 15 15 15
11
0
5
10
15
20
25
30
Nik
kei 2
25
MSC
I EEM
TOPI
X
Bove
spa
NIF
TY
Rus
sell
2000
Euro
Stox
x 50
Han
g Se
ng
DAX
Nas
daq
100
MSC
I EAF
E
S&P
500
FTS
E-10
0
KOS
PI 2
00
S&P/
TSE
60
Impl
ied
Vola
tility
(%)
14%
9% 9% 8%7% 7% 7%
6% 5% 5% 4% 4%3% 2%
-3%-6%-4%-2%0%2%4%6%8%
10%12%14%16%
NIF
TY
Rus
sell
2000
MSC
I EAF
E
Han
g Se
ng
FTSE
-100
TOPI
X
Nik
kei 2
25
DAX
S&P
500
KOS
PI 2
00
Euro
Stox
x 50
MSC
I EEM
Nas
daq
100
S&P/
TSE
60
Bove
spa
% Im
plie
d Vo
latil
ity C
hang
e
-0.4%
-1.2%
-0.6%
-0.5%
-2.3%
-0.9%
-3.1%
-3.5%0.0%
-1.4%
-0.1%
-0.3%
-0.3%
-2.8%
-2.3%
-4% -2% 0%
Implied Realized Implied Realized
S&P 500
Russell 2000
Nasdaq 100
EuroStoxx 50
FTSE-100 DAX
Nikkei 225TOPIX
KOSPI 200
Hang Seng
MSCI EEM
Bovespa
S&P/TSE 60
NIFTY
MSCI EAFE
-1.0-0.50.00.51.01.52.02.53.03.54.0
-4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0%
1w C
hang
e in
1m
Impl
ied
Vol (
%)
1w Index Return (%)
0 10 20 30 40 50 0 10 20 30 40 50
Implied Realized
0 10 20 30 40 50
-
February 3, 2014
Goldman Sachs Global Investment Research 16
The Correlation Connection: SPX 1m realized correlation, 34th
%-ile vs a 5y history
Exhibit 22: S&P 500 implied and realized correlation across
maturities. 5y history through January 31, 2014 market close.
Source: Goldman Sachs Global Investment Research.
1m 3m 6m 12m 24m 1m 3m 6m 12m 24mCurrent 0.37 0.41 0.44 0.47
0.51 0.33 0.28 0.28 0.28 0.315y %-ile 0.24 0.14 0.12 0.10 0.12 0.34
0.05 0.02 0.01 0.001m ago 0.29 0.34 0.38 0.43 0.51 0.31 0.29 0.25
0.30 0.341m Chg 0.09 0.07 0.06 0.04 0.01 0.02 -0.01 0.02 -0.01
-0.03
Min 0.21 0.30 0.35 0.41 0.46 0.10 0.22 0.24 0.27 0.3125 %-ile
0.38 0.44 0.48 0.50 0.53 0.29 0.32 0.33 0.37 0.46Median 0.45 0.49
0.52 0.53 0.55 0.39 0.38 0.38 0.46 0.4975 %ile 0.53 0.54 0.57 0.59
0.60 0.50 0.47 0.54 0.53 0.51
Max 0.79 0.74 0.72 0.70 0.71 0.83 0.75 0.70 0.61 0.57
S&P 500: Implied and Realized Correlation Implied
Realized
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Imp Corr 1m Imp Corr 3m Imp Corr 6m Imp Corr 12m Imp Corr 24m
Real Corr 1m Real Corr 3m Real Corr 6m Real Corr 12m Real Corr
24m
Cor
rela
tion
25-75 %-ile Max Min 1w Ago Current
S&P 500 Realized CorrelationS&P 500 Implied
Correlation
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
May
-10
Aug
-10
Nov
-10
Feb-
11
May
-11
Aug
-11
Nov
-11
Feb-
12
May
-12
Aug
-12
Nov
-12
Feb-
13
May
-13
Aug
-13
Nov
-13
S&P 500 1m Implied CorrelationS&P 500 1m Realized
Correlation
S&P 500 1m realized correlation at 34th %-ile
-
February 3, 2014
Goldman Sachs Global Investment Research 17
Exhibit 23: One-month implied and realized correlation metrics
across the S&P 500 and sector ETFs. 5y history through January
31, 2014 market close.
Source: Goldman Sachs Global Investment Research.
lcorr Rcorr lcorr Rcorr lcorr Rcorr lcorr Rcorr lcorr Rcorr
lcorr Rcorr lcorr Rcorr lcorr Rcorr lcorr Rcorr lcorr RcorrCurrent
0.37 0.33 0.45 0.50 0.59 0.59 0.31 0.27 0.46 0.36 0.32 0.39 0.44
0.39 0.58 0.55 0.42 0.36 0.60 0.661 month ago 0.29 0.31 0.41 0.28
0.52 0.62 0.21 0.16 0.37 0.50 0.27 0.27 0.32 0.39 0.41 0.50 0.30
0.51 0.59 0.59High (5y) 0.79 0.83 1.03 0.86 0.95 0.94 0.78 0.75
0.71 0.85 0.86 0.81 0.90 0.89 0.93 0.94 0.77 0.80 1.00 1.00Median
(5y) 0.45 0.39 0.64 0.60 0.66 0.58 0.45 0.39 0.44 0.40 0.45 0.39
0.57 0.54 0.63 0.59 0.43 0.40 0.62 0.59Low (5y) 0.21 0.10 0.32 0.22
0.45 0.19 0.17 0.03 0.23 0.07 0.22 0.11 0.28 0.10 0.35 0.16 0.22
0.08 0.12 0.19
SPX XLE XLF XLK XLU
S&P 500 and Sectors: 1m Implied and Realized Correlation
(5y)
XLP XLY XLB XLI XLV
0.0
0.2
0.4
0.6
0.8
1.0
1.2
ICorr RCorr ICorr RCorr ICorr RCorr ICorr RCorr ICorr RCorr
ICorr RCorr ICorr RCorr ICorr RCorr ICorr RCorr ICorr RCorr
Impl
vs
Rlz
d C
orr (
1m)
25-75 %-ileMaxMin1w AgoCurrent
XLE XLFSPX XLK XLP XLY XLB XLI XLV XLU
0.33
0.660.59
0.550.50
0.39 0.39 0.36 0.36
0.27
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
SPX XLU XLF XLI XLE XLB XLY XLV XLP XLK
1m Realized Correlation
0.02
0.22
0.12 0.100.07
0.040.00
-0.03
-0.14 -0.14-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
SPX XLE XLY XLK XLU XLI XLB XLF XLV XLP
1m Realized Correlation, 1 month change
-
February 3, 2014
Goldman Sachs Global Investment Research 18
ETF risks
Exchange Traded Funds (ETFs) are redeemable only in specified
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EWW long, EWY long, EWZ short, FXI long, XLB long, XLE long, XLF
long, XLI long, XLK long, XLP long, XLU long, XLV long, XLY long.
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FXI, XLB, XLF, XLP, XLU, XLV, XLY.
-
February 3, 2014
Goldman Sachs Global Investment Research 19
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February 3, 2014
Goldman Sachs Global Investment Research 20
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February 3, 2014
Goldman Sachs Global Investment Research 21
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