The Economics of Financial Regulation
As marvelous as financial markets are for increasing wealth by connecting borrowers and lenders, spreading risk, and reducing asymmetric information, they can cause problems of their own. Bubbles, shocks, panics, recessions, and other kinds of financial crises can be disastrous because they increase unemployment, disrupt plans, erode life savings, and drive companies into bankruptcy.
The Chicago Board of Exchange (CBOE) publishes an index based on the prices of options, called the VIX, that measures the expectations investors have about the prices of stocks in the S&P 500 over the upcoming 30 days. This forward-looking index measures uncertainty and is generally correlated with periods of recession ...
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