Higher Future Financial Market Volatility: Potential Triggers and Amplifiers
Lieven Hermans and
Thomas Kostka ()
Financial Stability Review, 2017, vol. 2
The reduction in asset price volatility in recent years has taken place in tandem with investors lowering the premia required for lower-rated assets. The current favourable market sentiment could however change abruptly if, for instance, investors were to reassess the outlook for growth or monetary policy. Potential surges in asset price volatility could be amplified by: (i) investors selling off assets perceived as overvalued; (ii) the high levels of corporate leverage; and/or (iii) a rapid unwinding of market positions that benefit from low volatility. Low volatility in financial markets is therefore being closely monitored by financial stability authorities, as it may mask an underpricing of risks and a build-up of financial imbalances. JEL Classification: G00
Keywords: asset price volatility; financial market volatility; financial stability (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:fsrart:2017:0002:4
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