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Chicago Fed Letter, No. 04, December 1987
The Crash, Risk and Monetary Policy

Risk is always an important factor in the analysis of financial markets. It is also the hardest to get a handle on. However, there is little question that risk moves markets. And in some cases, such as the futures and options markets, it creates them. Between October 13 and October 19, investor perceptions of risk changed. This change in the perception of risk has altered price and return relationships throughout the financial markets. Put into the simplest terms, a 5% three-month Treasury bill rate (or a $100 share of stock) does not mean the same thing it did before October 19.



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