Applying the same old remedies to a totally different type of financial calamity runs the risk of steering the economy into a steep recession
What are the prospects of a market recovery and how fast might it snap back?
“This is a crisis unlike any other crisis we have seen in the last 100 years,” said Dan Galai, speaking at a news conference in Jerusalem last week. Galai, a world renowned financial engineering and risk management expert and former dean of Hebrew University’s School of Business Administration, is considered the co-inventor [along with his colleague Menachem Brenner] of the VIX index, now the international standard by which the financial markets measure short-term volatility. Nicknamed the “fear index,” the VIX is one of the few financial instruments that rose in last week’s volatile activity, trading about five times above its long-term average.
We can expect the volatility and fear to continue, Galai said.
“Nobody has clarity about the duration of the crisis, whether it is something that we can contain in two months when the summer weather arrives, or even if it may reappear next year,” he said. “The market panic is a response to the uncertainty and unknowns on a global basis. When people panic they look for liquidity and when they look for liquidity they sell everything. Of course it will create some opportunities, but that’s not the issue now.”
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