Research (Investicniweb.cz)
Currencies  |  October 12, 2012 10:00:54

Gloss and risk decreasing volatility in the markets: Securing makes sense



Have you noticed, too, that the prices in the global markets in recent months, are moving less and less? According to reports, it looks like one month to the end of the world due to uncontrolled collapse of the euro area, the second is marked by celebrations QEuforie when the central bank announces bond purchases in bulk. A lot of hype, but fluctuations in market prices and interest rates, most markets are shrinking. And not only that - even so-called declining implied volatility in the major markets. (SOURCE: MS)

Volatility (from the Latin volare = fly) is a measure of market expectations of how much the market price will move.

?e-?o-?i-la-li-for-?e (read devolatilizace)

Expectations traders how to fly stock prices, bonds and major currencies, vyklesalo its lowest since mid-year 2007, the level just before the collapse of Bear Stearns hedge funds and the beginning of the Great Depression. Expectations volatility also goes down as one man, which shows a graph of the measured volatility indexes VIX (U.S. equities), MOVE (U.S. bonds) and JPMG7VOL (7 most traded currencies).

Volatility

Falling volatility, actual and implied in the future, it means three reports - good, bad and good.

The good news: Most markets are gradually calms down after a frantic ride in the last five years. It's about time. A little rest will not hurt.

Bad news: Expected to calm markets cushion blows that could potentially absorb price jumps. Expected volatility decreases, because part of the market buys less defensive options, therefore, are more exposed, when prices begin to fly more. Part of the market plays old game sales volatility as in the years 2004 to 2007 (see below), so it is prone to panic closing positions. The decline in volatility goes hand in hand with a decline in risk premium in most markets.

GOOD REPORT: Expectations low price volatility in the markets precipitated down the cost of using options.

Goldilock to lower gear

Do you remember a similar trend decreasing volatility, which culminated in late 2006 and early 2007? Then there was a general belief that the volatility in the markets is dying because the global economy has reached a perfect balance - neither hot nor cold, so-called Goldilock. The economy is growing nicely, but without inflationary pressures and asset price bubbles; governments are fiscally responsible; depoliticisation central banks have everything under control.

Why can ensure against adverse price movements if prices do not move? To learn more about securing learn the investment site.

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