{"id":25648,"date":"2017-09-14T09:47:18","date_gmt":"2017-09-14T14:47:18","guid":{"rendered":"http:\/\/olduvai.ca\/?p=25648"},"modified":"2017-09-14T09:48:45","modified_gmt":"2017-09-14T14:48:45","slug":"could-market-complexity-trigger-the-next-crash","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=25648","title":{"rendered":"Could Market Complexity Trigger The Next Crash?"},"content":{"rendered":"

Could Market Complexity Trigger The Next Crash?<\/a><\/h3>\n
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Complex systems are all around us.<\/strong><\/p>\n

By one definition, a complex system is any system that features a large number of interacting components (agents, processes, etc.) whose aggregate activity is nonlinear (not derivable from the summations of the activity of individual components) and typically exhibits hierarchical self-organization under selective pressures.<\/p>\n

In today\u2019s infographic from\u00a0Meraglim<\/a>\u00a0we use accumulating snow and an impending avalanche as an example of a complex system \u2013 but really, such systems can be found everywhere. Weather is another complex system, and ebb and flow of populations is another example.<\/p>\n

<\/a><\/div>\n
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MARKETS ARE COMPLEX SYSTEMS<\/strong><\/p>\n

Just like in the avalanche example, where various factors at the top of a mountain (accumulating volumes of snow, weather, temperature, geology, gravity, etc.) make up a complex system that is difficult to predict, Visual Capitalists’ Jeff Desjardins notes<\/a> that markets are similarly complex.<\/p>\n

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In fact, markets meet all the properties of complex systems, as outlined by scientists:<\/div>\n<\/div>\n

1. Diverse<\/strong>
\nSystem actors have different points of view. (i.e. bullish, bearish, long, short, leveraged, non-leveraged, etc.)<\/p>\n

2. Connected<\/strong>
\nCapital markets are over-connected, and information spreads fast. (i.e. chat rooms, phone calls, emails, Thomson Reuters, Dow Jones, Bloomberg, trading systems, order entry systems, etc.)<\/p>\n

3. Interaction<\/strong>
\nTrillions of dollars of securities are exchanged in transactions every day (i.e. stocks, bonds, currencies, derivatives, etc.)<\/p>\n

4. Adaptive Behavior<\/strong>
\nActors change their behavior based on the signals they are getting (i.e. making or losing money, etc.)<\/p>\n

And like the avalanche example, where a single snowflake can trigger a much bigger event, there are increasing signs that the complexity behind the stock market has also reached a critical state.<\/p>\n

MARKETS IN A CRITICAL STATE<\/u><\/strong><\/p>\n

Here are just some examples that show how the market has entered into an increasingly critical state:<\/p>\n

Record-Low Volatility<\/strong>
\nThe VIX, an index that aims to measure the volatility of the market, hit all-time lows this summer.<\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n

 <\/p>\n<\/div>\n<\/div>\n<\/section>\n","protected":false},"excerpt":{"rendered":"

Could Market Complexity Trigger The Next Crash? Complex systems are all around us. By one definition, a complex system is any system that features a large number of interacting components (agents, processes, etc.) whose aggregate activity is nonlinear (not derivable from the summations of the activity of individual components) and typically exhibits hierarchical self-organization under […]<\/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":[154,501,506,15993,4318],"class_list":["post-25648","post","type-post","status-publish","format-standard","hentry","category-economics","tag-complexity","tag-market-crash","tag-markets","tag-nonlinear-systems","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/25648","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=25648"}],"version-history":[{"count":3,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/25648\/revisions"}],"predecessor-version":[{"id":25651,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/25648\/revisions\/25651"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=25648"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=25648"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=25648"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}