Should We Be Worried About Low Volatility?

Investors and policy makers who have worried about the historic slide in stock volatility the past year might have had good reason to do so: most market crashes are preceded by exactly that pattern.

A study of 40 financial-asset bubbles conducted by researchers including Didier Sornette at the Swiss Finance Institute concluded that in about two-thirds of the cases the crashes followed a spell of lower volatility — the “lull before the storm.” The study didn’t comment on current market levels.

“Our main finding is that volatility is neither a reliable indicator of the maturation of a bubble nor of its impeding ending in a crash,” Sornette and his colleagues wrote in a study posted last month. That in turn casts “doubts on the supposed general relationship between risk and return,” they concluded.

Bloomberg

Traders Eye FOMC Minutes For Balance Sheet Clues

DAX Higher as Eurozone GDP Improves in Q2

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.