Flirting with Models Dean Curnutt - The Reflexivity of Equity Volatility (S6E16)
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Sep 11, 2023 Dean Curnutt, founder of Macro Risk Advisors, discusses the nature of risk in markets, touching on various crises, reflexivity, risk recycling, and the evolving role of the Fed. They explore the 1987 stock market crash, Long-Term Capital Management, the 2008 Financial Crisis, the XIV implosion of 2018, and the 2020 COVID crisis. This episode is a must-listen for risk-focused individuals and those interested in market dynamics.
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Endogenous Reflexivity: Feature or Bug?
- Reflexivity and endogenous risk are inherent market features, not bugs.
- Crowding and trade size often accelerate crises, requiring careful regulatory speed limits.
Volatility Threshold for Market Stability
- Realized volatility below 15 correlates with stable or positive market returns.
- Higher realized vol signals growing market stress and increased likelihood of sharp declines.
Derivative Impact and Market Reflexivity
- The narrative that derivatives always drive markets is exaggerated; trading behaviors are complex and nuanced.
- Both short-vol blowups and meme stock rallies show reflexivity and market stampedes.