1. Markets Are Lulling Themselves Into a False Sense of Security.
- Author
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Sindreu, Jon
- Subjects
- *
INVESTMENT products , *INVESTORS , *SECURITIES trading , *FINANCIAL performance , *SALES statistics - Abstract
Structured products, particularly autocallables, have become increasingly popular in the stock market. Autocallables are notes linked to the performance of an underlying asset, such as the S&P 500, and offer generous coupons if the asset stays within a certain range. They have become attractive to less sophisticated investors as an alternative to low-yield time deposits and bonds. However, the surge in structured-product sales may be artificially suppressing volatility in the market, creating a potential risk. The Bank for International Settlements warns that the banks selling these notes have been forced to hedge the risk, resulting in lower long-term volatility. This feedback loop could lead to a sudden increase in volatility if the cycle is broken. Therefore, investors and issuers should be cautious and not rely solely on low volatility as an indicator of market stability. [Extracted from the article]
- Published
- 2024