Good Versus Bad Volatility

During the fall of 2008, as Lehman Brothers was collapsing and emails and text messages were documented to be flying back and forth among professional traders expressing concerns that the banking system might not be able to handle a derivatives event, a high degree of uncertainty gripped the market. Uncertainty is a component of volatility and is almost universally considered a market a market negative. A study from a trio of Wharton researchers says this is not always the case, however.

Good and bad volatility considered as different measures of risk by Wharton researchers

There are two categories of uncertainty, Wharton finance professor Ivan...