Voices
Rumours had swirled among the broker community about a so-called ‘whale’, who was creating a massive impact on stock prices with huge orders. The option contracts were so large that banks and dealers were forced to enter the market and buy the same stocks. It was self-fulfilling.
During the market rout in March, traditional correlations in many markets went awry. Bonds sold-off significantly, despite the massive increase in risk aversion and the significant declines in equity markets. This correlation breakdown led to huge losses for so-called risk parity funds (risk parity funds look to equalise risk in portfolios, but often leverage the fixed income component of their portfolios to offset the effects of equity declines). As a result of the Covid-19 pandemic, central banks around the world rolled out a huge and unprecedented monetary stimulus, which consisted of interest rate reductions to all-time lows, the return of…
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