In bubbles, what ting as if you go back to this idea of fundamental value versuquidity value. If they do believe that the risk is worth it, then they can put pressure on the price downwards. So i think that a if arbitrage, or a return to fundamental thinking, is what drives the collapse of bubbles. But we tryt to arbitrar something in the other direction. When it's going too high, you have all these instabilities and all these additional risk factors Thatare a consequence of market structure and just the way the transactions occur. It change the entire calculation. And the arbitrash mechanisms are more fragile and less reliable because of that very fact.
Lily Francus is a risk theorist and a quantitative researcher at Moody’s. She is also the author of the ‘Midnight on the Market Momentum’ newsletter. Find Lily on her Twitter at https://twitter.com/nope_its_lily and read her newsletter at https://nopeitslily.substack.com Jesse Livermore is an OSAM research partner and a recurring guest at Infinite Loops. You can connect with him on Twitter at https://twitter.com/Jesse_Livermore and read more about his work at http://www.philosophicaleconomics.com/ Show notes:
- Why all the recent focus on bubbles?
- How the era you grow up in shapes your investment philosophy
- Intrinsic and Extrinsic value
- How leverage impacts pricing
- What is a bubble? And how to identify if you’re in one
- Role of uncertainty in arbitraging
- What makes a bubble pop
- How bubbles set a new floor price
- Do we have enough short sellers?
- Time arbitrage
- Information arbitrage in a hyper-connected world
- Are we currently in a financial bubble?
- Implications of pseudonymity
- Is there a free will?