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Or, Despite What You Might Think The socialists Aren't Done.

"The Real Risk Is Believing That Volatility Is Risk"

Investors are much more concerned about a surge in the VIX than they are by the prospect of nuclear war—that's a mistake.

By James Mackintosh

Updated April 30, 2018 1:25 p.m. ET 23 COMMENTS Which risk should you be more scared by: American cities being vaporized by North Korean nuclear missiles, or the VIX spiking above 20? Judging by recent market reactions, investors are much more worried about volatility than they are by the prospect of nuclear armageddon.

In one way this is a grossly unfair comparison, but it also goes to the heart of one of the most important questions in investment: What is risk?

Investors almost entirely ignored what many thought was a rising prospect of nuclear war on the Korean Peninsula last year, and they have also pretty much ignored the welcome prospect in the past week of peace breaking out. Investors realize they have no idea what the chance of war is, and aren't even any good at assessing whether it has gone up or down.

By contrast, February's "volmageddon" had a direct impact on stock prices. The Cboe Volatility Index and its equivalents in other markets are treated by many investors, academics and policy makers as a proxy for risk generally.

This is a mistake.


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