This was so non-intutive to me that I deemed it worthy of a quick blog post. Take historical prices from yahoo finance (or another website) and look at the daily high and low quoted prices of the S&P 500 during any handful of days from 1972 and compare them to a handful of days from 2014.
For all 1972-1975 the lowest daily volatility was 1.05% (October 9, 1972). The highest was 6.47% (interestingly October 9 again, this time 1974) and the median was 1.85%. An average day during that period would be Feb 26, 1973 where the S&P500 high was 113.26 and the low was 111.15 for a daily volatility of ~1.86%.
Contrast that to 2014. Over the last 90 days the lowest volatility has been 0.31% (April 23) and the median has been ~ 0.7%. In fact, 80% of the trading days had volatility below 1%, where as pointed out in the paragraph above zero trading days from 1972 to 1975 were below 1%
Conclusion: Even with all the internet trading and cheap commissions, daily volatility has gone down significantly over the past 40 years. You would think the free-er flow of capital would increase volatility, but it has not.