Passive Investing, Inflation and the Bifurcated Economy with Mike Green
Jul 11, 2024
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Mike Green, expert in passive investing, discusses the impact of passive investing on markets, risks from increased options usage and the short volatility trade. He also shares his views on inflation, recession risks, Fed policy, and the bifurcation in the economy. Mike's thought-provoking perspectives cover a wide range of market dynamics and risks.
Passive investing's impact on markets explored through academic research and risk implications.
Increased options usage post-2020 analyzed for effects on market behavior and volatility.
Insights on economic recession risks and hedging credit spread risks in portfolios discussed.
Deep dives
Impact of Passive Investing in Markets
Passive investing's influence on markets is discussed in the podcast, highlighting recent academic research and implications. The impact of passive investing on large vs. small stocks, systematic allocation strategies, and market dynamics is analyzed. Insights include the significance of least elastic stocks, implications of systematic rebalancing, and the shift towards total market portfolios.
Influence of Systematic Strategies on Market Behavior
The discussion delves into the shift from active to systematic strategies, emphasizing the impact on market dynamics. Academic research on systematic allocation strategies, rebalancing channels, and portfolio construction is highlighted. The manipulation of allocation percentages and its effects on market dynamics are explored in relation to systematic strategies.
Factors Influencing Market Volatility
The podcast analyzes the relationship between option trading, volatility, and market behavior. The increase in options usage post-2020, implied correlation levels, and impact on market dynamics are scrutinized. Insights include leveraging mechanisms, stock proxies in option trading, and the implications of implied correlation on market stability.
Economic Recession and Market Performance
Insights on economic recession, market behavior, and risk management strategies are discussed. The impact of credit dynamics, Fed policies, and market exposure to economic downturns is examined. Analysis includes perspectives on defending against credit spread risk, portfolio hedging strategies, and market reactions to recession indicators.
Election Impact on the Markets
The election's potential influence on the market is explored, focusing on risk-off and risk-on scenarios. Past election trends and market reactions are reviewed, highlighting active manager reallocations and market uncertainties. Insights encompass pre-election risk aversion, post-election risk-on events, and market reactions to political outcomes.
In this episode we have a fascinating discussion with Mike Green of Simplify about the ongoing impact of passive investing on markets. Mike shares insights from recent academic research supporting his thesis and discusses how the risks of passive may play out over time. We also explore potential risks from increased options usage and the short volatility trade.
In the second half, we turn to the economy. Mike provides his views on inflation, recession risks, and Fed policy. He explains his concerns about bifurcation in the economy and markets, with different segments experiencing very different conditions. We conclude by discussing Mike's approach to hedging credit spread risks. Overall, Mike offers his usual thought-provoking perspectives on a wide range of market dynamics and risks.
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