Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Volatility so far has been benign

Yesterday, I wrote an article
in the Financial Express saying that volatility in the
Indian stock market so far has been benign and there is no need for
regulatory intervention. You can also read the story here.
The article concludes by saying that:

The volatility that we have witnessed so far has been benign. While there have
been large losses, there have been no major defaults or bankruptcies. Risk
management systems at the exchanges have held up well. The volatility has
been large enough to grab headlines but not large enough to cripple the
markets. Volatility on this scale serves to focus attention on the huge
fundamental uncertainty that exists. Several years of booming economies and
rising asset prices have led to a reduction of risk premiums to the point where
risk is probably under priced in many markets. A period of heightened
volatility serves as a gentle reminder that prices can go down as well as go up.
If this reminder leads to a re-pricing of risk in domestic and global markets,
that is also welcome.

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