Boston University School of Law
Volatility is as old as the financial markets. The bull market of 1986 and the crash that followed in 1987 were but the latest of periodic market gyrations that started with the South Sea Bubble and the Lombard Street run on commercial paper and have continued ever since.' Volatility in the financial markets would not be very important if market activity simply mirrored economic activity. Volatility would be much less important if the markets moved independently of the economy. But if we believe, as I do, that the markets and the economy are interdependent, and that their volatility is generally out of sync (because financial assets move much faster than the economy), then volatility in the financial markets can create "bubbles" and "runs."2 Therefore, instability in the financial markets can magnify instability in the economy.
What Can Be Done about Stock Market Volatility,
Boston University Law Review
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