Market risk tends to rise when recent news has been more surprising than before.

Question

BlackTom AI · Accepted Answer

When evaluating how market risk responds to news, the key idea is that surprises increase uncertainty and price correction, which tends to elevate volatility and risk.
Option 1: 'Make sense' — This aligns with core financial intuition that larger or more unexpected news pushes markets away from prior expectations, leading to bigger price moves and higher risk in the near term. In other words, the surprise element adds information asymmetry and traders adjust positions, amplifying volatility.
Option 2: 'Make no sense' — This would be incorrect because if news were less surprising over time, we would typically expect a reduction in incremental risk as expectations align with outcomes, lowering uncertainty and volatility. Claiming that increasing surprise does not affect risk ignores established linkages between information shocks and price dynamics.
In sum, the relation described—risk rising with greater surprise in recent news—is generally consistent with how markets process new information; reducing surprise would, all else equal, tend to dampen risk rather than amplify it.

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Market risk tends to rise when recent news has been more surprising than before.

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