Is risk predictable?

Market volatility either fills us with excitement or makes us want to run for the hills; one person's meat is another person's poison. But what is it? Volatility is essentially the degree to which markets swing around, particularly on the downside. One common measure of volatility is the VIX volatility or ‘fear' index, which measures the degree of uncertainty about the S&P500 index, based on options prices. We can see from chart 1 that the index is similar to a heart monitor, with big spikes in the index being associated with economic heart attacks, like the collapse of Lehman Brother...