The equity volatility-credit link

The recent bout of market volatility across asset classes arrived on the heels of a protracted, four-year period of low realised and low implied volatility. Much of the recent turmoil has emanated from the credit markets. As such, to effectively examine the current equity environment, it behoves an investor to understand the linkage between equity volatility and credit. As we reflect on the market's rather extreme volatility over the past weeks, the divergence of credit and equity volatility helps to illuminate the focal point of the market turmoil: balance-sheet uncertainty and counterparty risk.

- The equity volatility-credit link (PDF, 607KB)

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