Why have stock markets been falling so much?

That is the topic of my latest Bloomberg column, note first of all that the virus is a kind of referendum on global response capabilities, and so far we have been failing (with Singapore as a possible exception).  Here is another bit:

…investors now have a better sense of what other investors think about risk. Before Covid-19, investors did not have much direct information about what other investors thought about the robustness of the global economy. Their expectations were not seriously being tested.

When a new shock to the system comes along, however, everyone gets to observe everyone else’s selling behavior. And investors have learned that the faith of their fellow investors is not as strong as they had thought. That raises the risk premium on holding stocks, and in turn causes share prices to fall more. Given how much this pandemic is a truly new event, and that the process of trading itself generates information about the forecasts of other investors, price volatility can be expected to continue.

And this:

The stock market is scared by the fact that it took so long for the stock market to be scared.



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