- First, the Chinese market dropped 9% [picture]. That wouldn't, by itself, worry me so much. The stock market isn't that important to China's economy. It isn't a particularly well done stock market either, so I don't worry so much about the information content of this drop in prices. You might find this book review to be mildly interesting. William Pesek has a good column on Bloomberg, and this IHT story describes recent events.
- The big news is that last night, while we were sleeping in Indian Standard Time, the S&P 500 dropped 3.47% [picture]. Menzie Chinn has a great blog post diagnosing what happened, Caroline Baum has a good column on Bloomberg about the US housing market, and this NYT story uses the R word. This one-day drop of 3.47% is a fairly big move for the S&P 500 which has a daily sigma of 1%. If I look at the post-1990 period, on 99% of the days, the one-day returns were milder than -2.6%. They seem to get three days in each four years, on average, with a move of worse than -3.47%, and the last four years have been unusually benign.
- Most world indexes have also dropped [link]. I think this is mostly in response to the drop in the S&P 500 and its changed vol, and not so much in response to events in China.
- For many months now, the volatility of the S&P 500, as forecasted by the index options market, has been slumbering at remarkably low levels. It has jumped back dramatically [picture], going from near 10% annualised vol on Tuesday to roughly 18% last night. I wrote about the eerie low volatility a few weeks ago, and many commentators have been worried about the extent to which assets are `priced to perfection'.
- Turning to India, Business Standard has an excellent edit showing you the political context of this budget speech.
Wednesday, February 28, 2007
We live in interesting times
Just when you thought financial markets had become boring, things got interesting again.