- The Financial Times – Gavyn Davies: Ultra low market volatility – friend or foe?
A pre-eminent question for 2018 is whether these low volatility levels are reflecting excessive complacency (and possibly extreme leverage) among investors. A sudden spike in vol, for whatever reason, would almost certainly be accompanied by a significant drop in risk asset prices, possibly causing financial instability as it did in 2008. Central bankers have quite rightly started to worry about these issues, and many market practitioners believe that ultra-low vol is a major danger signal for markets. These “contrarian” investors suggest that over-extended asset prices are ignoring the state of economic or geopolitical “fundamentals”. Jeffrey Frankel states the pessimistic case very well here. - The New York Times – Is the Stock Market Too Quiet for Its Own Good?
A rare calm has settled over the stock market. Whether it turns out to be the one before the storm is a compelling question after a year of conditions so placid that investing has begun to look deceptively simple. In all of 2017, the Standard & Poor’s 500-stock index experienced no decline greater than 3 percent, the first time that had happened. And a widely followed volatility index known as the VIX closed below 10 on more than 40 days in a six-month period through late November, according to Citi Research. Before that, the VIX had not closed below 10 on more than six days in any six-month period.