Is it possible we underestimate market risk? Consider the range of possible outcomes from the recent repealing of the rate-cap law for instance (out of the myriad that could also be chosen): Those involving its possible impact on company profitability, default rates and pricing.
How confident are investors that the outcomes will not cause the market to implode? Are investors correctly measuring their tolerance for risk on possible future reactive policy decisions? Is our reliance on “historical-based” risk measures unfounded when the future is full of uncertainties?
