Stock Markets’ Fear of Falling
Stock markets worldwide have recently been more vulnerable to sudden large drops than they have been to sudden large increases. This may reflect an underlying sensitivity to price drops, which could fuel a succession of downward price changes, amplifying public concerns about problems in the economy and heralding a profound change in investor sentiment.
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NEW HAVEN -- The sharp drop in the world’s stock markets on August 9, after BNP Paribas announced that it would freeze three of its funds, is just one more example of the markets’ recent downward instability or asymmetry. That is, the markets have been more vulnerable to sudden large drops than they have been to sudden large increases. Daily stock price changes for the 100-business-day period ending August 3 were unusually negatively skewed in Argentina, Australia, Brazil, Canada, China, France, Germany, India, Japan, Korea, Mexico, the United States and the United Kingdom.