The Butterfly Effect

I’ve been looking out my window this morning and “The Butterfly Effect” came to mind.

The term comes from the suggestion that the flapping of a butterfly’s wings in South America could affect the weather on the other side of the world, meaning that the tiniest influence on one part of a system can have a huge effect on another part.

Butterfly, Insect, Animal, Wing, Nature
The Butterfly Effect Perhaps?

In the case of today, maybe it was only a small butterfly, but the wind and rain, although not cyclonic, was certainly blowing a gale and the rain torrential.

Taken more broadly, the butterfly effect is a way of describing how, unless all factors can be accounted for, large systems like the weather remain impossible to predict with total accuracy because there are too many unknown variables to track.

Could the same be said for Financial Markets?

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