How the Fed and the rise of passive investing and volatility strategies have combined to make market movements faster and more severe.
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This episode is sponsored by Crypto.com, Bitstamp and Nexo.io.
Corey Hoffstein is the founder and Chief Investment Officer of Newfound Research LLC, a quantitative research and investment fund. He is also the host of the “Flirting with Models” podcast.
His most recent research is “Liquidity Cascades: The Coordinated Risk of Uncoordinated Market Participants.”
In it, he examines three popular narratives about what is driving radical swings in markets, including:
- The increased role of the Fed
- The rise of passive and index investing
- The growth of volatility-correlated strategies
He finds that, individually, none could explain the radical market shifts we’ve seen. However, when combined, they create a market incentive loop that is causing markets to move and react to exogenous shocks more quickly and aggressively than ever before.
See also: The Decade of the Living Dead: How Zombie Companies Are Robbing Tomorrow’s Economy
For more episodes and free early access before our regular 3 p.m. Eastern time releases, subscribe with Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, iHeartRadio or RSS.
