Entering 2018, it may be worth keeping an eye on “unconventional” risks, including monetary policy risk, political risk, and geopolitical risk. This article examines one way of measuring such risks and shows how they may interact with both equity prices and volatility.
While the effects of monetary policy shocks are not directly observable, an analysis of historical evidence can help quantify the potential impact of such shocks on asset prices.
Investors seem to expect benign market conditions to continue, but they should remain aware of the historical tendency for rapid, positive shifts in volatility measures to occur.