Why Markets Are Underpricing Geopolitical Risk

The video discusses how markets price geopolitical risks, often underestimating them due to central bank policies. It highlights the correlation between interest rates and risk pricing, noting that unexpected events can have varying impacts. The market's capacity and central bank actions influence risk pricing, with a tendency for short-term overreactions. Overall, the market is seen as underpricing political risks, driven by low interest rates and central bank policies.

What factors contribute to the pricing of geopolitical risks in the market?

How do central bank actions influence market perceptions of political risk?

What challenges do markets face in predicting the impact of geopolitical events?

In what ways has the market historically responded to geopolitical risks?

What is the significance of the disconnect between political uncertainty indices and market volatility?