{"id":12188,"date":"2015-09-12T17:46:46","date_gmt":"2015-09-12T22:46:46","guid":{"rendered":"http:\/\/olduvai.ca\/?p=12188"},"modified":"2015-09-12T17:46:46","modified_gmt":"2015-09-12T22:46:46","slug":"market-risk-model-smash","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=12188","title":{"rendered":"Market risk; model smash"},"content":{"rendered":"
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Market risk; model smash<\/a><\/h3>\n<\/div>\n
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Seeing the\u00a0market crash\u00a0<\/a>from a few weeks ago, it is clear how quickly the markets can ferociously thrust past one’s risk models. \u00a0Risk models that failed to safeguard against risk\u00a0<\/span>when it absolutely mattered the most<\/a>. \u00a0Models that left many large hedge funds hemorrhaging\u00a0– top funds which by definition\u00a0were supposed to<\/i><\/b>\u00a0protect their investors during the August tumult. \u00a0Instead when markets broke bad, a lot of things “went wrong”. \u00a0And stayed that way. \u00a0In this article, we explore a number of the large U.S. market crashes since the mid-20th century, and show how the recent bust compares. \u00a0We learn why relying on tail\u00a0<\/span>risk models\u00a0whose approximations presume to work consecutively at all times, can lead to failure. \u00a0The key for investors (if they must be active) is to always remain vigilant. \u00a0Professor Nassim Taleb recently\u00a0expressed it<\/a>\u00a0nicely:<\/span><\/p>\n

The *only* way to survive is to panic & overreact early, particularly [as] those who “don’t panic” end up panicking & overreacting late.<\/b><\/i><\/span><\/p>\n

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And there were many who wound up in panic mode, in recent weeks. \u00a0Expeditiously selling at a loss, under record volume on August 24 (China’s Black Monday). \u00a0Let’s first consider what an overall market crash look like. \u00a0We quickly show a symmetrical V-shaped illustration here. \u00a0This illustration also shows a rise in fear on the way down, with peak panic near the bottom (the\u00a0orange<\/i><\/b>\u00a0star), then followed by up-moves that mirror the previous down-moves. \u00a0We will need to review this overall shape in a future article. \u00a0But for now we discuss simply the left side of the illustration (the solid\u00a0brown<\/span><\/i><\/b>\u00a0<\/span>down-arrows).<\/p>\n

…click on the above link to read the rest of the article…
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Market risk; model smash Seeing the\u00a0market crash\u00a0from a few weeks ago, it is clear how quickly the markets can ferociously thrust past one’s risk models. \u00a0Risk models that failed to safeguard against risk\u00a0when it absolutely mattered the most. \u00a0Models that left many large hedge funds hemorrhaging\u00a0– top funds which by definition\u00a0were supposed to\u00a0protect their investors […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[8405,130,6941,501,7248,690,8986,8985,2442],"class_list":["post-12188","post","type-post","status-publish","format-standard","hentry","category-economics","tag-black-monday","tag-china","tag-chinese-stock-market","tag-market-crash","tag-nassim-taleb","tag-risk","tag-risk-models","tag-statistical-ideas","tag-us-stock-market"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12188","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12188"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12188\/revisions"}],"predecessor-version":[{"id":12189,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12188\/revisions\/12189"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12188"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12188"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12188"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}