Yup "Fat-Tailed Thursday" is what it will be referred to historically by those US equity momentum traders who do not manage to successfully erase this day from their memory. It is not dissimilar to the scale of destruction in the spring of 2000 when the tech bubble first started to unravel. The volatility pick up has signified something is awry, and today, whether by mass recognition of their prior delusions or through the puking unwind of some very large long vs. short momo strategies, pain will be most evident across the momo and speculative growth desks in trading rooms around the country.
Sadly, I am not short of them. For while certain flavors of momentum and growth model well historically, and provide nice hedges to more alpha-producing value-biased strategies, and while growth at any price is a stupid undertaking, it is undertaken by unwise people of unsound minds. I make it my business to be short of the stupid undertakings, but am cautious when my return is dependent upon unwise people recognizing their unsoundness of their decisions, return is all-too-often a ways off. So I watch this from a distance today, hoping that similar fears will rock the increasingly momentized-world of Japan.
Much as I sympathize with your position and think it is both intellectually sound and philosophically coherent, I'm not sure your day in the sun has yet arrived.
ReplyDelete1). -4.5% is a bit of a magic number for one-day panics in not totally bubblicious bull markets - witness the London tube bombings, for example. It is, in fact, the only number that will release my inner dip-buyer.
2). The VIX, be it at last September's levels, closed down yesterday. Unexpected, to say the least.
I wish I'd been there to see it. Was it a dislocation in price or earnings momentum factors or both? It would be interesting to see what effect a value screen would have. Does it show up in the skew and kurtosis graphs?
ReplyDeleteclare