A look at the recent past makes it clear: the number of extreme events in capital markets has increased significantly. 2018 was already impressive, with almost the same number of extreme events as during the 2008 financial crisis - one of the worst recessions historically! However, 2020 was even more extreme. The number of daily moves greater than four times the standard deviation of daily moves over the last 100 days had almost tripled. Markets have become more susceptible to quick, sharp movements. During the Covid-19 crisis, for example, we had the fastest bear market ever, followed by the fastest bull market ever. 2020 saw the sharpest increase in realised volatility since 1928, despite a much smaller drawdown than in 1928, 2008 or during the TMT bubble. Even smaller drawdowns lead to higher volatility shocks!
Increased abrupt, extreme market movements are only one of the challenges investors have to face. Market behaviour has changed dramatically over the last 10 years. Why is this and how can investors respond to these challenges?
Authors
Ulrich Urbahn
Ulrich Urbahn is a CFA charterholder and, for many years, was part of one of the world’s top three multi-asset research teams in the renowned Extel survey. After earning degrees in economics and mathematics from Heidelberg University, he spent more than ten years at Commerzbank, where he worked, among other roles, as a Senior Cross-Asset Strategist. He has been with Berenberg since October 2017 and heads the Multi Asset Strategy & Research as well as the Portfolio Management Alternatives departments. In addition, he is a voting member of the Investment Committee and is responsible for capital markets communication.
Suitable investment solution
Multi Asset
Flexible-opportunistic Multi-Asset concept with a focus on capital market niches, megatrends, and tactical ideas globally from all asset classes - free from a benchmark.
