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Financial markets have been remarkably tranquil this year, but some money managers and analysts fear that is leading to a build-up of bets on continued stability that could unravel spectacularly when turbulence reappears. Various measures of actual and expected stock market volatility have fallen to post-crisis lows this year, but some investment managers and strategists warn this is building risks of a bigger decline – comparing it with a forest that has gone too long without a bushfire, which produces an increasing amount of dry kindling for an eventually larger conflagration. One exchange-traded note that gains when the Vix index of expected short-term US equity volatility falls has handed investors returns of more than 500 per cent since 2011, as post-crisis bouts of turmoil have quickly dissipated, with many investors seeing any sell-off as a chance to load up on more stocks.Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors, says most investors selling volatility are doing so carefully.
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