Popping the Volatility Balloon Theory

The current concern amidst investors and central bankers is that we are creating a new risk bubble. Complacency in markets has been linked to the success of easy money policy globally indriving up asset prices and slowly lifting growth. The stability of the world economy in 2017 hasbeen a standout in comparison to the rest of the post-2008 crisis period. Tracking the risk tomarkets for the next blow up has not been easy in recent years. Many traditional indicators oftrouble, ranging from Libor spreads to the shape of the yield curve, have found idiosyncraticreasons to flash “red” when the actual outlook is “green.”

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