While the measures of future or implied price volatility look remarkably subdued, they are disguising a minefield. REUTERS/Brendan McDermid
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Traditional measures of volatility at historic lows and Wall Street stocks at new record highs went hand in hand in 2016 with traders fretting about bouts of wild stock-price swings and currency "flash crashes". The past year has been nothing if not paradoxical for financial markets – a landscape that will probably persist in 2017 .An analysis of intraday volatility across major equity, bond and currency markets shows that episodes of sudden, extreme market volatility have become more commonplace in the last two years, even though implied volatility has been contained.GET ME BLOCKSPart of the issue is that markets are now driven by lightening quick, complex, computerized trading programs at the big banks and investment funds.In equities, the surge in the use of exchange-traded funds which provide investors access to markets at a much lower cost than traditional actively-managed portfolios has significantly altered trading.All signs point to markets being more fragile than the low level of aggregate volatility suggests.
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