Poloz: Making Sense of Markets

From bankofcanada.ca

Making sense of financial markets is supposed to be easy. Stock prices, bond yields and exchange rates are all expected to behave in line with economic fundamentals. We know the reality is more complicated than that. Yes, financial markets react to new information—in fact, they usually overreact. Today’s overreaction becomes tomorrow’s retracement, and so on. It can be very difficult to reconcile high-frequency financial market action with slower-moving economic fundamentals. Often this process of reconciliation is just a matter of time, since economic data arrive with a lag while financial markets live in the ... (full story)