Monday, April 24, 2017

French election results cause VIX to crash

In chapter 9, we learn that, in the long run, risky assets must return enough to compensate shareholders for bearing risk.  So when the risk suddenly declines, current stock prices increase to reduce expected return.

Colleague Bob Whaley's VIX index (previous blog posts on VIX), which measures risk in terms of the implied volatility, declined suddenly in both the US and EU as it became likely that the pro-EU candidate would win the French election.

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