The Dow Jones index has moved more than 100 points up or down on many trading days over the past four weeks, marking an impressive return of stock market volatility. Yet the broader implications are far from clear, if only on account of the different possible causes.

Markets care about two-way volatility because it influences portfolio construction. The lower the volatility, the smaller the probability of traders being stopped out of positions by rapid price moves, and the greater the enticement to pile on risk. It is, therefore, not surprising that four years of repressed volatility have encouraged risk-taking beyond what is warranted by underlying fundamentals.

Indeed, an objective of unconventional monetary policy is to suppress volatility in order to bolster asset prices and trigger positive economic responses on the part of (now wealthier) households and (now more motivated) companies. In other words, to promote higher financial risk-taking not as an end in itself but as a means to bolster greater economic risk-taking. In this context, recent fluctuations in the Dow Jones index are noteworthy, as they come after a period of unusual market calm in spite of geopolitical tensions and economic surprises.