All posts tagged: volatility

What do you expect?

What do you expect will happen? We usually think in simple terms: better or worse? Up or down? An advert for Mad Money on CNBC advises: Make $ as bull or bear—but don’t be a hog! How we talk about the markets matters a great deal. Stories influence our expectations and our sentiments. The narratives around the Black-Scholes model and the Gaussian copula were once widespread and affected the way we thought about risks and risk dependencies. Now these narratives are out of currency, along with many others. New stories have taken hold: unicorns and the digitalization of the world, for example.The robots are coming to Wall Street. How influential will they become as storytellers? Markets unravel when the stories get too tall and reality catches up with fantasy. Now it’s an interesting question to ask: when are markets vulnerable and when are they robust to irrationally exuberant conventional wisdom? From a psychological point of view, we become more robust as we become more aware of ourselves and our environment. The ability to describe our …