Will Stock Market Volatility Simmer or Spike?

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MIT SMR Strategy Forum

Each month, we pose a question about business, management, technology, or public policy to our panel of academic experts. Here you can see what they think and why.
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We asked our panel of strategy experts to tell us how strongly they agree with this statement:

The increase in stock market volatility that began in 2018 will last for another three to five years.

After a tranquil market run in 2017, 2018 marked one of the more volatile years in recent past, and it saw 50% of the 10 biggest single-day gains and declines for the Dow Jones to date. In some cases, investors may be betting on continued stock market volatility as political uncertainty prevails with Brexit and the rise of populism continues in European elections. Should organizations be wary of continued whipsawing in the market, or does recent calming mean that lower volatility is on the way?

RAW RESPONSES
WEIGHTED BY CONFIDENCE

Raw Responses

Responses weighted by panelists’ level of confidence

Panelists

Panelist Vote Confidence Comments

Scott Stern

Massachusetts Institute of Technology
Profile
Agree 2 “Definitely not my area of expertise, but significant global uncertainty and differences in beliefs among investors seem likely to persist.”

Richard Florida

University of Toronto
Profile
Agree 7 “If anything, I think it may increase. We are living through a period of significant turmoil, crisis, and resetting in the U.S. and global economies. These are generational events to sort out.”

Joshua Gans

University of Toronto
Profile
Neither Agree nor Disagree 10 “I see this question as your regular reminder that nothing with regard to the stock market, including its volatility, is predictable over any time period.”

Anita McGahan

University of Toronto
Profile
Agree 8 “Structural changes in value have not been built into many valuation models, which makes them less reliable. These structural changes will not slow over the next five years. The only question is whether approaches to valuation will catch up.”

Rebecca Henderson

Harvard University
Profile
Agree 8 “I’m struck by how much uncertainty there is in the business world right now. Many of the managers I talk to are expecting a correction, if not a crash — and making their investment plans accordingly. I’d be very surprised if we don’t see a lot more volatility.”

Ashish Arora

Duke University
Profile
Neither Agree nor Disagree 1

Erik Brynjolfsson

Massachusetts Institute of Technology
Profile
Neither Agree nor Disagree 1

Tom Lyon

University of Michigan
Profile
Disagree 3 “This is hard to assess. With respect to U.S. stocks, a significant amount of volatility today is due to policy uncertainty around tariffs, other trade issues, whether the ACA will be repealed or not, whether the U.S. will continue to tear down relationships with allies and support autocrats, corruption, etc. It is possible the 2020 election will usher in greater stability.”

Richard Holden

University of New South Wales
Profile
Neither Agree nor Disagree 6 “There are good reasons — perhaps most notably U.S.-China tensions — for a lot of investor fear at the moment. For that to continue uninterrupted for several more years would be sufficiently damaging that it would involve a serious failure of the political process. Yet, it is hard to argue that political processes are working well globally.”

John Van Reenen

Massachusetts Institute of Technology
Profile
Agree 5 “Trade wars, end of tax cut sugar high, China slowdown, and Brexit all contribute to volatility.”

Melissa Schilling

New York University
Profile
Neither Agree nor Disagree 6 “Three to five years out is a long window to make predictions about the stock market. There are plenty of drivers of volatility we could consider, but it is still difficult to predict with any certainty.”

Barry Nalebuff

Yale University
Profile
Neither Agree nor Disagree 2 “If I could predict volatility, I could make a lot of money buying or selling options on the VIX.”

Lori Rosenkopf

University of Pennsylvania
Profile
Agree 4 “The outcome of the 2020 election will bear heavily on this issue. Reelection would mean ongoing erratic information about policy, which promotes uncertainty and volatility. A transition of power, in contrast, could reduce uncertainty, but this wouldn’t be immediate.”

Timothy Simcoe

Boston University
Profile
Agree 3 “My confidence is low on any question about market forecasting. But a working hypothesis is that current volatility reflects some combination of political uncertainties and the length of the expansion. I see few signs that politics will get less volatile over the next few years.”

Aaron Chatterji

Duke University
Profile
Neither Agree nor Disagree 5

Maryann Feldman

University of North Carolina
Profile
Agree 7 “Markets like stability. Uncertainty over trade wars, border disputes, and U.S. fiscal policy increase risk and make it difficult to forecast future earnings.”

Shane Greenstein

Harvard University
Profile
Neither Agree nor Disagree 1 “Many factors move the stock market. I do not think I can forecast 1% of them, so I do not think I am capable of forecasting volatility that results from their accumulation.”

Topics

MIT SMR Strategy Forum

Each month, we pose a question about business, management, technology, or public policy to our panel of academic experts. Here you can see what they think and why.
Learn more about this series

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