Financial markets have entered an Era of Dissonance that will stand in sharp contrast to the relative harmony and economic expansion of the last half of the 20th century. The Era of Dissonance will not easily resolve itself into a more comfortable and predictable environment and may last as long as a decade or more. During this transition period to a new world order there will be a continual conflict between perceptions of reality, widely variant possible outcomes, and confused future expectations. Financial markets will remain challenged, with bouts of uncertainty concerning strikingly different potential outcomes. The dissonance will profoundly disturb the dynamic evolution of market returns, volatilities, correlations, and risk-taking preferences. Our understanding of financial risk management is likely to undergo critical changes, because simplified approaches and traditional "rules of thumb" will not work during this period.
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