My observation on this change in market bahavior is confirmed in the report:
The evidence presented in this Report shows that over the period from mid-2004 to March 2006 the volatility of short-term and long-term interest rates, stocks, exchange rates and corporate spreads has been generally low relative to the previous five to 10 years in both industrial countries and emerging market economies (EMEs). However, if the sample period is extended back to the last two to three decades, for which daily data are available, other periods in which volatility reached similar low levels can be observed. The exception is represented by the volatility of short-term interest rates, which has reached its lowest level for 20 years in all the main currency areas.
Regarding the possible causes of this are:
The sharp decline of financial volatility witnessed over the last few years may have benefited from increased liquidity of financial markets. Since this concept is not easy to operationalise, it is useful to look at several indicators.
Throughout the sample the turnover of stock markets has increased considerably, and now stands almost everywhere around the highest levels since 1990. In the foreign exchange markets volumes were virtually flat over the period 2000-02, but since 2003 an upward trend has emerged.
In recent years financial innovation and the rise of new classes of financial institutions, combined with a change in the trading behaviour of traditional institutional investors, have contributed to increasing market liquidity.
And something more interesting is this part:
A key issue is whether the current low level of volatility is a permanent new feature of financial markets or only a temporary phenomenon. The results suggest that important drivers of the volatility reduction seem to be structural, and may therefore have a permanent effect on volatility.
So ? Less volatility. Smoother charts ? My quick guess is this: trend following strategy may perform better on lower timeframe.
Another good material was posted in my friend’s blog here, tittled “Market Effects of Hedge Funds”.