, Columnist
There Are Early Signs of a Value-at-Risk Shock
There’s increasing evidence of a change in correlation between bonds and equities. Risk-management models mean this is likely to be bad for both.
Unwelcome surprises.
Photographer: BRYAN R. SMITH/AFPThis article is for subscribers only.
Financial assets, pretty much all of them, are in increasing danger of some nasty shocks and not only because many are horribly expensive.
The problem, as we started to see last week, is a changing relationship between government bonds and equities. Should that change become more entrenched — and this week’s movements suggest it will — many investors will be able to hold fewer of either. That’s because of the risk-management model that just about everyone uses and which is written into the way banks and big investment firms are regulated and capitalized.