Wall Street Dealers in Hedging Frenzy Get Blamed for Volatility

by nafizzaki

The article I am talking of. which is based on this paper.

Their research suggests that the recent volatility in the market is being driven by a boom in derivatives market and market makers performing gamma hedging.

The paper talks about the events that unfolded in September and in some other times.

Goldman Sachs has already put out information regarding that trading volume of single stock options exceeded that of regular shares.

READ  Volatility & Timing for the Inauguration

As a result, some are suggesting that the derivatives market is driving the underlying shares, not the other way around.

This mean there is likely to be more flash crashes with larger magnitudes and elevated stock runups.

The more mainstream members of the finance community are now playing catch-up.

READ  Volatility & Timing for the Inauguration

If this elevated levels of options activity continues, the fundamental characteristics of the market could remain this way.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

76 views