Doubts dog equity dispersion as market grows up to five-fold

Some say $500 million vega notional – or more – in popular equity derivatives trades could be dampening volatility

Blue and white balls bouncing into a room

Equity dispersion has become the relative value volatility trade of choice for hedge funds and asset managers, with notionals up as much as five-fold in just four years. It’s a growth spurt leading some to question whether the strategy could be dampening volatility on the Standard & Poor’s 500.

Participants broadly agree that equity dispersion, in which investors bet the volatility of single stocks will outpace index volatility, now represents at least $500 million of vega notional – the amount

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