Volatility and Returns in VUCA Transatlantic Markets

The volatility, uncertainty, complexity, and ambiguity (VUCA) environment has become a part of the norm in modern firms. This study attempts to quantify VUCA in today’s market while analysing whether corporate resilience and strategies of modern international firms have changed the historical relationship between volatility and returns. Using daily data from 1995 to 2025 for the S&P 500 covering 80% of the U.S market cap and the STOXX Europe 600 covering 90% of the total market cap in the European continent, the study uses Ordinary Least Squares regression (OLS) to test long-term volatility trends and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models to check if the VUCA environment will persist for a long time. In the past, Volatility was historically inversely related to returns, which is consistent with the low-volatility anomaly. However, through VUCA quantification, the results of this study contribute to existing theories by revealing a significant change: both U.S. and European firms achieved strong positive returns despite elevated volatility. This result is unprecedented in the modern financial system: volatility, even though will remain as an important measure of risk, may no longer capture the capacity of firms to generate high returns in today’s modern VUCA world. In other words, since the entire market is VUCA, volatility maybe should no longer be avoided.