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This piece was contributed by David Shin, Associate Director, PAAMCO Singapore
The volatility of
volatility is
generally higher
in Asian markets
than in other
developed
markets. Also,
Asian markets
typically have
skews much
lower than
those in the
West, and we
believe a key
reason for this is
the plethora of
structured
products sold in
the region.
While there are
many types of
option-linked
structured
products, some
of the most
widely issued
products in the
region are notes
designed by
bankers to pay a
slightly higher
yield under
"certain
conditions."
Volatility is often referred to as the "investor fear gauge" as it is generally higher in times of distress. In the last 15 years
there have been several panic situations: the Asian Crisis in the late 90s, the demise of the tech bubble in the early
2000s, the SARS scare in Asia in 2003, and most recently, the global financial crisis of 2008. All these large distress
events led to episodes of increased volatility (in some cases radically so). It has been a little less than five years since the
last "big event" and volatility levels have reverted to near pre-crisis lows, even though there are still several macro risks
and the economies of many developed and developing countries look weak. This drop in volatility can be partially
attributed to the provision of liquidity by central banks
around the globe to many investors who, in search of
yield,...................... To view our full article Click here
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