The VIX has been very high last few months and at 35 today. Some talking heads on CNBC have been suggesting that this is the time to buy momentum given elevated volatility. I tested the data and find no relationship between past volatility and near-term future returns. I do find volatility clustering effects, which is very high, but this in itself is non-sequitur to a suggestion for entering into equity momentum trades.
Historical volatility measures can forecast future volatility, albeit with some error. Volatility clusters when periods of high volatility followed by periods of high volatility, and periods of low volatility tend to be followed by periods of low volatility. We also tested with VIX, a forward- looking measure, to find materially similar outcome. Constant volatility exposure can be arrived by de-leveraging when past volatility was high and leveraging when past volatility was low. No relationship between past volatility and near-term future returns.