There’s a Reason People Are Worried About Low Volatility
- Subdued volatility is ‘lull before the storm’ in most cases
- Investors sometimes turned ‘deaf, dumb and blind,’ study says
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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.