On a more tangible level, the lenders will be encouraged to loosen standards because if any lender loosens standards then he or she will gain market share and increase asset volatility that makes all loans riskier.
"Frequent and large reassessments of risk and high volatility in asset prices are likely to remain a part of the scene for some time, " it explained said.
When positions and exposures cannot be determined rapidly--as was the case, for example, when program trades overwhelmed the system during the 1987 stock market crash--potential outcomes include highly risk-averse behavior by market participants, sharp declines in market liquidity, and high volatility in asset prices.
Lately, it has been en vogue to consider volatility its own asset class.
Stephen Hammers : Yeah, we actually have several indexes on many different asset classes called the CEMP Volatility-Weighted Indexes.
He is a volatility arbitrage specialist who trades volatility as an asset class in an effort to take advantage of inefficiencies in the options markets.
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Mr Haldane finds that both volatility and correlation between asset classes have increased in tandem with volume.
Vega measures the amount of movement in the option for a 1% move in the volatility of the underlying asset.
Vega: the Greek that most folks then want to become familiar is Vega or options sensitivity to a 1% move in the volatility of the underlying asset.
The volatility of the underlying asset can be difficult to measure or guess, especially since it is not always clear what it is if, for example, it is yet to be invented.
Given the many moving pieces in the complex, global investment puzzle, investors would be wise to revisit their asset allocation strategies to help ensure that they have the diversification in place to withstand potential periods of heightened volatility as well as the breadth of asset classes and sectors to help deliver risk adjusted growth opportunities.
History is filled with cycles and each asset class carries its own DNA of volatility.
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Next, assemble a portfolio with that level of volatility balanced across several different asset classes.
In general, there will be extreme volatility and uncertainty in most asset classes across the board.
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For others, it encapsulates a prolonged period of high volatility (in either economies or asset markets).
So, just as you own different asset classes to reduce your portfolio's volatility, you should diversify among account types to manage your tax risks.
Modern portfolio theory advocates blending asset classes to maximize expected return and minimize portfolio volatility.
In the current environment, fund managers are positioning for continued volatility and opportunities created by dislocations across asset classes.
As a result, investors would be wise to let recent market volatility serve as a reminder to revisit their asset allocation strategies to ensure that they have the depth of asset classes and sectors in their portfolios to provide the diversification necessary to help navigate uncertain, and likely turbulent, markets going forward.
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It also can analyze your holdings to show a complete asset allocation and other portfolio characteristics, like its geographic breakdown and volatility, that otherwise would require a financial planner or visits to multiple brokerage accounts to calculate.
Each year, I analyze the primary drivers of asset class long-term returns including risk as measured by implied volatility, expected earnings growth based on GDP estimates and foreign business expansion, market implied inflation based on the spread between long-term Treasury Bonds and TIPS, and current cash payouts from interest and dividends on bond and stock indexes.
"The cut will not ease volatility on its own, " said one London-based asset manager.
While past performance cannot guarantee future results, and asset allocation cannot ensure a profit or protect against a loss, applying a historical perspective and maintaining an appropriate strategic asset allocation can help provide comfort and direction to investors during periods of great volatility.
The reason is that such a document spells out a logical asset allocation given one's financial goals, discusses the historical levels of volatility inherent in the chosen allocation and mentally prepares the investor for the harsh reality that periods of "black swan" events do happen.
The "capital asset pricing model" identified one factor, beta, or a stock's volatility relative to the index, as pivotal to the stock's returns.
Despite limitations on debt that looked low at first glance compared to other investment vehicles, the extreme volatility in the underlying assets owned by the BDCs led to a death spiral involving forced liquidations, asset retrenchment, and dividend cuts.
"The market has yet to bottom, and volatility will likely remain for another month, " said Yoshihiro Okumura, general manager for research at Chibagin Asset Management.
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