Low Volatility Brings High Leverage to Markets

The video discusses the impact of low volatility on market fragility, highlighting the risks fund managers face. It examines market reactions to events like Brexit, emphasizing the role of central bank support in maintaining stability. The discussion extends to deleveraging trends in global equities and the influence of volatility on quant strategies, stressing the potential for feedback loops that exacerbate market sell-offs.

What is a key risk associated with periods of low market volatility?

• Decreased market liquidity

• Increased market stability

• Higher returns for investors

• Increased likelihood of sudden market shocks

How did the market react during the post-Brexit period?

• Equities and bonds both rallied

• Equities sold off while bonds rallied

• Both equities and bonds sold off

• Bonds sold off while equities rallied

What is a potential consequence of a bond-led sell-off?

• Increased equity prices

• A domino effect across various markets

• Stabilization of the bond market

• Decreased market volatility

What factor has been crucial in holding the market together in recent years?

• Central bank support and monetary policy

• Stable geopolitical conditions

• Increased investor confidence

• High levels of market volatility

How do quant strategies typically respond to changes in market volatility?

• They become less sensitive to market changes

• They target a fixed level of volatility

• They increase their market exposure

• They ignore volatility changes